First-Time Home Buyers Incentive (FTHBI): What is CMHC Promising?

• According to a CMHC survey conducted in 2018, 50% of first-time home buyers said that price/affordability was the most important factor when buying a home [x].

• CMHC has unveiled it’s First-Time Home Buyers Incentive (FTHBI), which will launch September 2, 2019. This incentive is marketed as assisting buyers without adding financial burden.

• This help will come in the form of equity mortgages, and will come in two forms:

  • 5% for a first-time home buyers purchase of a resale home;

  • OR 5-10% for a first-time home buyers purchase of a new build.

• To qualify for this incentive, buyers must have mortgages that are default insured, their household income must be less than $120,000, and the total amount of the insured mortgage plus incentive cannot be more than 4x the participants household income.

We know you have questions. Keep reading below to have them answered ⬇️

“How will FTHBI work?”

CMHC is aware that the average family struggles to come up with a downpayment for an average house in their market; this is why they have marketed FTHBI as a way to help with this issue by getting the goverment to help you come up with the downpayment!

Unfortunately, it won’t really work like that.

In Edmonton, the average single family detached property costs about $400,000. With a minimum downpayment of 5%, the average family would have to come up with $20,000 upfront without taking part in the incentive. If they did take part in the incentive, they would ONLY have to come up with… $20,000.

What CMHC is proposing is that first-time home buyers will still have to pay the minimum downpayment of 5% before CMHC matches it with another 5%. If you’re looking for help coming up with the downpayment on a house, you won’t find it with CMHC.

“So, what is CMHC actually helping with?”

If you put a larger downpayment on a house, you will have a lower mortgage amount, which would lower your monthly payments… but if we’re only talking about $20,000, we’d be surprised it that saved you $130 monthly in bills.

“That still sounds pretty good, Taylor. What’s the problem?”

The problem is that you will have to pay that 5-10% back to CMHC, either at the resale of your home or 25 years later. They will ride this market with you, which means that if your house appreciates in value, they get a cut. If your house depreciates in value, they take a cut.

If you’re living in a market where houses will appreciate, are you actually saving more on monthly mortgage payments than you are paying back to CMHC each year for appreciation?

Canada Mortgage and Housing Corporation (CMHC) may have a government-friendly sounding name, but they’re essentially a giant insurance company that gets special exemptions. CMHC’s shareholders made news last Fall for making $387 Million in a single quarter. If you were a shareholder of CMHC and invested in 10% of Canada’s real estate, you would probably do pretty well for yourself… especially considering that those markets are going to raise a bit.

➡️ Bottom Line: Downpayment’s are a short-term pain, while the eventual resale of your property is a long-term gain. Does this incentive sound like CMHC is truly trying to help our young Canadians? If this is what help looks like, then it seems to wear a balaclava.

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