Hot of the press new (FTHBI)

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The Federal Government has a new initiative intended to help clients purchase their first house. If you can arrange 5% down payment from your own resources or gifted from an immediate family member, the government will give you an interest free loan for an additional 5% down payment. Thinking of buying a new house? The government will give you an additional 5% making your total down payment 15%.

How Does This Help Me?

When a person buys a house with 5% down payment they are subject to a Default High Ratio Insurance Premium in the amount of 4% of the total mortgage loan. Now with the additional 5% down payment, your Default High Ratio Insurance is reduced to a lower bracket. To understand more please see the attached slide from Genworth Financial.

 

Standard Premium Rate Chart

LTV Ratio Premium Rate Top-Up Premium
Up to 65% 0.60% 0.60%
65.01%-75% 1.70% 5.90%
75.01%-80% 2.40% 6.05%
80.01%-85% 2.80% 6.20%
85.01%-90% 3.10% 6.25%
90.01%-95% 4.00% 6.30%

(Default Mortgage Insurance is most commonly referred to CMHC, although there are two private companies called Genworth Canada and Canada Guaranty that provide the same insurance at the same cost)

In addition to the savings in the Insurance Premiums that are added to the mortgage, the purchaser will also qualify for a higher purchase price. Not only can you qualify for more purchasing power, you will also pay a lower monthly payment to help you afford your new house in your month to month budget.

If you have more than 5% from your own resources, you can still apply for the loan as well. As an example if you are buying an house and you have 10% down payment, the government can still approve an additional 5%.

Let’s take a closer look at the savings using an example

In all three scenarios, we will use the same criteria:

House Price:                         $300,000.00

Interest Rate:                      $2.74%

Mortgage Term:                 5 Years Fixed

Amortization:                      25 Years

Example 1 will be a purchase using current practices without the new loan

Example 2 will be an existing house, including the new 5% loan

Example 3 will be a new house, including the 10% loan

 

  1 2 3
Purchase Price $300,000.00 $300,000.00 $300,000.00
Down Payment Total $15,000.00 $30,000.00 $45,000.00
Total Mortgage Proceeds $285,000.00 $270,000.00 $255,000.00
Insurance Premium $11,400.00 (4.00%) $8,370.00 (3.10%) $7,140.00 (2.80%)
Initial Mortgage Loan $296,400.00 $278,370.00 $262,140.00
Monthly Mortgage Payment $1,363.46 $1,280.52 $1,205.86

 

Do I Qualify for this loan?

This loan is for first time home buyers only. If you currently own a home and you are upgrading to a newer larger property, you are not eligible to apply. If you sell your current house and plan to purchase another, you cannot qualify. To be a first time home buyer it means that for the past 5 Years you have not owned a house.

The exception to the rule is in the case of divorce. If you and your partner are in a home together and are selling due to a divorce, it appears as though you can apply.

In addition, this programs has a maximum income of $120,000.00 Family Income per year. If you are earning more than $120,000.00 this program is not intended for you. It is to assist lower income families to become home owners in an increasingly costly real estate environment

What are the payments? When can the loan be repaid?

During your home ownership you will not have to repay anything. You will be forced to repay the loan if you sell the house OR after the 25 years Amortization. You can repay this debt at anytime if you choose to do so.

Here is the interesting part that you need to know. The federal government is a partner in your home ownership. They will share in your profit and you will share the loss. If they gave you 5%, when you pay them out with the sale you will pay 5% of the sale price. If you pay it out sooner, the government will have you order an appraisal and you will pay them 5% of the appraised value.

Considering the loan is interest free we still believe this is a good deal.

Anything else I should know?

This program is effective September 2 2019 for all houses with possession after November 1st 2019.

The government has allocated only 1.25 billion dollars to this program or three years, whichever happens first. If they run out of money, the program will be cancelled so act accordingly

Keep in mind that the Federal Government will register a 2nd mortgage behind the bank that financed the house.

 

If you have any questions or concerns, please do not hesitate to call us anytime. Mortgage Financing doesn’t need to be difficult when you choose the right partner.