It was interesting to see the technique the Federal Government is using to assist home buyers without overstimulating the fragile housing market!
The first announcement is an initiative in partnership with Canada Mortgage and Housing corporation geared toward first time home buyers which would see up to $1.25 billion over three years to help lower mortgage costs for eligible Canadians.
Essentially, in addition to the 5% down payment the home buyer comes up with, they would receive an incentive of 5% for existing homes or 10% for new builds to lower the amount of their mortgage. This incentive is essentially an interest free, payment free loan which has to be paid back when the house is sold.
For example, if a buyer in PEI was purchasing a home for $250,000, their minimum down payment would be $12,500 and in this scenario, their monthly payment would be about $1233 per month. Under the new incentive plan, in addition to their $12,500 down payment, they would receive another 5% for existing housing, or $12,500, under the plan to reduce the mortgage by a further $12,500. The monthly payment in this scenario would be about $1168 or a savings of $65 per month. For buyers purchasing a new build, the incentive would increase to 10%. This incentive applies to first time buyers with a household income under $120,000.
The government hopes to have this program up and running by September.
The second announcement is a boost to the existing Home Buyers Plan which increases the allowable tax free withdrawal from $25,000 to $35,000, but perhaps even more beneficial to us, here in PEI where housing costs are lower, is the announcement that they are extending the program to non-first time buyers who are experiencing a marital breakdown. This is good news for clients in this situation because leaving a situation with two partners contributing to the expenses and having to buy a home on your own and come up with a down payment with limited savings, can be daunting. Under this plan, these clients could tap into their RRSP’s for a down payment without the tax burden. It is important to note that the funds withdrawn under the Home Buyers Plan do have to be paid back to your RRSP over 15 years to avoid the taxes.
This change will be for effective for withdrawals made after March 19, 2019.
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