Government As Your Home Ownership Partner

How would you like the government has your home ownership partner?

This week the Canadian government announced a new program that as far as I know is the first of its kind in the world. The measure would make it easier for first time home buyers with household incomes less than $120,000 per year to buy a home. But in this case, the government would register a lien against the equity in the home, and not just the debt. 

Under the program, the buyer would bring a 5% downpayment in the form of equity. This is the same as the ratio loan currently offered by our federally owned mortgage insurer.

• The Incentive would allow eligible first-time home buyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corporation (CMHC).


• It is expected that approximately 100,000 first-time home buyers would be able to benefit from the Incentive over the next three years.


• Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a 5 per cent down payment and a 10 per cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month. Terms and conditions for the First-Time Home Buyer Incentive would be released by CMHC.


• CMHC would offer qualified first-time home buyers a 10 per cent shared equity mortgage for a newly constructed home or a 5 per cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in our largest cities.

The terms of the announcement are not completely clear. From what I understand, Functionally, it's more like an almost interest-free loan — one where the repayment plan doesn't require any payback until years in the future.

The Government budget document is far from clear on how much the buyer would owe; is it the same dollar amount the CMHC provided up front, or does the bill go up based on how much the house has appreciated in value? 

Government officials say details of the plan will be hashed out in the coming months. I really don’t know how I would feel about having the government own a portion of my home. In my case, I am not eligible for this program because I’m not a first time home buyer.