In March the federal government unveiled changes to the budget that included an interesting opportunity for prospective first time home buyers through an enticing program that they called a “shared equity mortgage”. This program could see Canada’s housing agency (CMHC) kicking in up to 10% of the purchase price of a home if certain conditions are met, therefore bringing down the mortgage load and monthly payment for first time home buyers.
We always focus on the Terms and Conditions of the mortgage. Most people have no idea what the bank is talking about when they sign the mortgage. We DO as we do this every day.
Here is a link from a Canadian Law website about a CLASS ACTION LAW SUIT against CIBC for calculating their payout penalties incorrectly: https://canliiconnects.org/en/commentaries/66074
Buddy gets his mortgage with his bank because he loves his bank, and they matched the broker rate. But he also got a $35,000 payout penalty, and the broker's mortgage would have had a $7,000 fee. Dang hey.
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This article is old and still shows the same calculations.
We get calls on high payout penalties all the time. The answer is broker lenders have payouts that are about 30% as much as the Big-6 banks.
Mortgage Mark Herman, top Calgary mortgage broker.
Many home owners have all their banking in one place for convenience but this is another “trap.” If everything is at your favorite bank, they can see:
We have completed 6 of these deals in 2019. There was as total of 260. So that puts us at completing 2.5% of the entire Calgary market for this program. Interesting!
Obviously, we love this program for these 2 reasons:
- You save between $100 and $200 per month on the mortgage payments. For sure. From Day 1.
- The point of the program is to lower your mortgage payments. When the government puts 5% down for you, it lowers the total balance outstanding and this lowers the payments.
You save about $4000 in the CMHC fees.
- You put down 5%, and the government matches 5% on existing homes. That means your CMHC fee is based on 10% down and not 5% down, and you save that from Day 1 as well.
The down side
The down side is this is registered as an interest free loan from the government. You still pay them back 5% of the sale price when you sell. That is 5% of whatever the sale price is so it could be more or less, but it is still 5%.
“The down side is not a big deal!
Guaranteed lower mortgage payments and lower CMHC fee! This is a win!”
Mortgage Mark Herman, Top Calgary Mortgage Broker near me.
FREE RESEARCH Data on the First Time Home Buyer Incentive from Mortgage Mark Herman.
- Call us for all the data you need on this program.
- We have it all and can explain it to you -it is a long, boring read.
Here is the link to the full article, pasted below https://www.canadianmortgagetrends.com/2020/02/cmhcs-first-time-home-buyer-incentive-off-slow-start/
Four months after its official launh, CMHC’s First-Time Home Buyer Incentive had funded just 4% of its three-year goal, according to new data provided by the agency.
From the time the down payment assistance program launched on Sept. 2 to Dec. 9, CMHC received just 3,252 applications from across Canada, 2,730 of which were approved. That translated into total funding of $51.3 million—well off pace of the agency’s three-year target of $1.25 billion.
Under the program, the government will provide first-time buyers with an interest-free down payment loan of up to 5% for resale purchases, and 10% if the property is a new build. The CMHC then participates in any rise or fall in value of the home, and the loan must be repaid either when the house is sold or within 25 years.
Interest in the program was highest in Quebec, where 1,300 applications were received. Comparatively, just 436 Ontarians applied, according to statistics that were tabled in Parliament last week.
Here’s a look at the breakdown of applications from some of the major housing markets across Canada:
- Greater Toronto Area: 148
- Vancouver: 45
- Edmonton: 447
- Calgary: 260
- Winnipeg: 144
- Montreal 654
- Halifax: 64
- New Brunswick: 60
- PEI: 12
CMHC head Evan Siddall defended the results via Twitter on Friday:
“In addition to CMHC’s challenges in estimating demand for the FTHBI, uneven lender support is a complicating factor,” he tweeted on Friday. “It may also be evidence that there is less unsatisfied FTHBI demand due to the stress test than people claim. People can always buy less expensive homes.
Why is the FTHBI Unpopular?
Since the initiative was first announced in the Liberals’ spring budget, many in the industry have criticized it for being overly complicated and promising negligible benefits.
One of the biggest restrictions of the program is that it’s currently limited to purchases of up to $565,000. In markets like Toronto and Vancouver, buyers can be hard-pressed to find available properties under that threshold. According to recent data from the Toronto Real Estate Board, the average sale price in December was $837,788.
TD is/ was the 1st and only bank to charge higher mortgage prime rate for their mortgages.
TD is now the 1st of the big banks to now charge interest on their late-interest-owed:
Here is an UPDATE to the Canadian New First Time Home Buyer Incentive Program
A Calgary lawyer recently had an opportunity to review the program and attend a basic seminar. He said he would not recommend the “down payment equity share” program to a first time home buyer for the following reasons – BUT here are our replies … and the Program DOES make sense to do.
NEGATIVE POINTS and the reasons FOR the program are below:
- It will take much longer to be approved for this program than for a normal mortgage loan and sellers may not accommodate the longer condition time.
With the latest developments the Bank of Canada (BoC) has clear path to reduce the Prime rate from 3.95 to probably 3.70%
The Bank of Canada is feeling the pressure to get back into the game with a rate reduction and one obstacle has now been removed.
The bank held its rate the same for an 8th straight meeting on October 30th.
At the same time it has clearly signaled it may not be able to hold that line much longer.
The bank pointed directly at trade conflicts (such as the U.S. – China tariff war) as the key cause of a global economic slowdown and around the world more than 35 other central banks have already cut rates in an effort to keep growth up.
The U.S. Federal Reserve has made three cuts in the past several months. That has boosted the strength of the Canadian dollar which makes the country’s exports more expensive on the world market which is unwelcome.
Great news that the Bank is not concerned that a drop in interest rates will trigger a renewed frenzy of debt-funded consumer spending. It is satisfied that the biggest component of household debt – mortgages – have been stabilized by the B-20 regulations. And another big obstruction has been removed. The federal election is over so the bank can operate without risking the appearance of political favoritism.
Fixed rates are still the way to go right now.
They are close to the all time 119-year lows right now.
Mortgage Mark Herman