CMHC Hedging Its Bet on First-Time Homebuyer Incentive

CMHC Hedging Its Bet on First-Time Homebuyer Incentive

Now that home prices have peaked, reports are coming that the federal government intends to introduce restrictions on its First-Time Homebuyers Incentive (FTHBI) program to cover their exposure.

Introduced in September 2019, the FTHBI was meant to assist new buyers through a shared equity mortgage. The government’s 5% or 10% loan is combined with the buyer’s down payment, depending on whether the purchase is an existing home or a new build. This would decrease the mortgage needed for the purchase and lower their mortgage payment.

The federal government would then have a 5 or 10% stake in the home’s equity and its future gain or loss, which is due to be repaid when the home sells at market value or after 25 years.

What initially appeared as a solid investment by the federal government as home prices increased over the past several years is now becoming a liability as home prices are set to fall.

As a result, the federal government is said to take actions to limit its losses or gains to 8% in either direction, noted the source.

“When the market turns, government moves to limit its downside,” noted the source.

That means the crown corporation Canada Mortgage and Housing (CMHC), which administers the program, will limit its share in the appreciation and depreciation of a property’s value at 8% each year, not compounded.

The move will be applied retroactively for homes increasing in value, while the maximum loss limit will begin June 1st.

Ian Clark

Ian Clark is a graduate of The College of The North Atlantic's School of Business and is a Mortgage Broker with East Coast Mortgage Brokers. Prior to ECMB, Ian was brokering with Mortgage Alliance Provincial Mortgage Group. Ian is also an active member of Mortgage Professionals Canada, Canadian Mortgage Brokers Association, Canadian Progress Club and the Mount Pearl Paradise Chamber of Commerce.