|Let’s look at some of the details. (Disclaimer: this is all so new that the details are sketchy, but this is as I understand them):
1. You still have to qualify for a mortgage in the normal way: you need the same good credit score, you need to have the minimum down payment (technically 5% but, for most people, 10%), and your debt ratio must remain within the acceptable limit.
2. The stress test that the government instituted several years ago, whereby you had to qualify for a mortgage 2% above the contracted interest rate, has not been removed.
3. Your mortgage cannot be more than 4 times your annual income.
4. Your income must not be greater than $120,000, nor your mortgage greater than $480,000, to qualify.
5. The loan from CMHC is not free money; it must be paid back on sale of the home.
What are the effects of this initiative? In part, it gives back some of what the government took away when they introduced the Stress test. When that came into effect, it effectively decreased the value of property one qualified for by about 20%. This new incentive effectively gives back either 10% or 5% of that value.
Let’s look at an example. If, before the stress test came into effect, you would have qualified for a property valued at $500,000, then, after it came in, you qualified for a property of only $400,000 value. If you qualified at the 5% down level, you would need a mortgage of $380,000. With this program, if this was a new house, then the government would add 10% of the home value ($40,000) by way of the CMHC loan, so you would need only a $340,000 mortgage to pay off. This could reduce the monthly payments (payments on a $340k mortgage being substantially less than on a $380k mortgage) OR, allow you to buy a $440,000 property because you already have qualified for that $380,000 mortgage, have paid $20,000 down, and the government will provide another 40,000. (Actually, it’s a little more complicated than that, but let’s simplify.)
But, here’s another likely effect: if people start taking advantage of this incentive it will heat up the housing market somewhat, at least in houses under $480,000, which means prices will go up, and the net benefit may be offset within a year or two. Bottom line: the early ones into the program will benefit most.
So, if you’re ready to jump onto it, go for it (well, as soon as they have the program actually up and running, anyway).