Here are my thoughts regarding the government’s offer of an interest-free loan in exchange for a percentage of ownership in your home.
On January 17, 2017 the BC liberals introduced something similar called the BC Home Partnership Program. The program offered to match home buyers’ down-payment costs with an interest-free loan for the first five years. When NDP took power back in March of 2018, they removed the program stating that,
“When the program was first introduced, it was anticipated it would provide 42,000 loans over a three-year period, however, as of January 31, 2018, there were fewer than 3,000 loans approved.”
While the program sounded advantageous and enticing, popularity was minimal simply due to an unachievable list of requirements and restrictions. These restrictions filtered several prospective buyers wanting to part-take in the program. In addition, the return was not equivalent when comparing to the hoops Canadian homebuyers needed to jump through. Furthermore, lenders reacted to the program by putting a repayment factor on the interest-free loan that hindered the initial benefit of not having to make payments for the first five years.
Moving forward, I predict that we will have even fewer loans approved as the number of insured mortgages in addition to the CMHC incentive, would be capped using a formula (4X your annual income up to a max of $480,000). In simpler terms, Fraser Valley home buyers making $60,000 a year, would qualify for a $240,000 purchase (that really doesn’t get you a whole lot).
We’re not yet certain as to how this will be implemented, but if there is a repayment factor attached to the loan, it will have very little impact on helping Canadians get into the housing market.
At this point I would not be surprised if there is further action taken by CMHC, allowing for 30-year amortizations for those that have less than 20% down-payment. I personally think this is a terrible idea, sure your monthly payment might be a few dollars less, but it ultimately extends the life of the loan and increases interest over time.
Should they proceed with the extended amortization strategy, I would expect it to take place closer to elections in an attempt to try and leverage themselves.
If the government is concerned about helping Canadians get into the housing market, they should consider lowering the stress test rate.
For more information on the 2019 Federal Budget, visit: https://www.theglobeandmail.
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