Instituted by the Department of Finance and CMHC officially on November 1, 2019, the First Time Home Buyer Incentive is a way to help qualified first time home buyers tap into an interest-free loan from CMHC to immediately save money in four unique ways:
1. On their mortgage default insurance premium
2. On the PST charged on their insurance premium
3. On the overall amount of interest charged on their outstanding mortgage balance
4. On the regular monthly or bi-weekly mortgage payments
The program is also called the “Shared Equity Program” because CMHC takes a very small ownership position with your on your home (it can only be 5-10%). That position equals the amount of their interest-free down payment contribution when you bought the home, and is registered as a second mortgage on the title of your new home.
The interest-free loan must be paid back at some point in the future and most commonly when you either:
1. Sell your home
2. Refinance your home to take out equity
3. After the total mortgage amortization period is up or 25 years
The reason this program is called the Shared Equity Program is that for instance, when you sell your home, you must pay back the interest-free portion that CMHC gave you when you bought the home as well as 5% of the gain in value you make when you sell.
For example, if you purchased the home for $300,000 originally and you made a 5% down payment and CMHC matched your 5% down payment, then CMHC would be entitled to getting their original 5% down payment back (with no interest) as well as 5% of the gain in the value of the home. So, if you sold your home for $340,000 and therefore made a $40,000 gain when you sold, you would also pay the CMHC back 5% of the $40.000 gain or $2000 in addition to the down payment money. Not a bad amount of money to pay them back for the money you saved upfront.
For full program details, please visit www.placetocallhome.ca or simply contact the Sparrow Team to see how this program may benefit you for your first home purchase!