Here's How Much Money the Trudeau Government Will Save Millennial Homebuyers in Brampton

The lack of affordable homes in some of Canada’s biggest cities—Brampton included—has reached crisis levels and all levels of government are working to combat the potentially dangerous affects a troubled housing market could have on not just residents, but the overall economy.

In recent months, the Toronto Real Estate Board (TREB) called on the federal government to eliminate the OSFI stress test that requires prospective buyers to qualify for mortgages at higher interest rates than they’ll ultimately be paying. The inability of people--especially young people--to purchase homes (condos in the GTA typically cost over $400,000), has led to disappointing sales numbers. It’s also been squeezing the rental market.

To make things a little easier, the Justin Trudeau government has opted to share the first-time buyer mortgage burden.

The Liberal government has promised an expansion of the maximum amount of RRSP funds first-time buyers can access under the Home Buyers’ Plan (HBP), from $25,000 to $35,000, or $70,000 between couples buying together.

Over the coming year, it also plans to launch a brand new $1.25-billion mortgage equity sharing program called the First Time Home Buyers’ Incentive. Going forward, the government will provide first-time buyers with interest-free mortgage loans—up to 10 per cent for new builds and 5 per cent for existing housing stock. This will be done through the Canada Mortgage and Housing Corporation (CMHC).

So, how much can a homebuyer qualify for under this plan?

Ratehub, a well-known Canadian mortgage rate comparison website, shared some affordability calculations that demonstrate how much a homebuyer could qualify for as a part of the First-Time Home Buyer Incentive program, and without it.

The current qualifying criteria—including the stress test—allows a household to qualify for a house that is 4.5-4.7 times their household income. Under the new incentive, however, the government has set a purchase limit of four times household income for the mortgage plus the amount provided by the government.

By participating in this program, a first-time homebuyer reduces the amount they can qualify for by about 15 per cent and their monthly mortgage payment naturally decreases in lockstep.

So, what do the numbers look like?

Ratehub says that for a household with $100,000 of income, putting a minimum down payment of 5 per cent (23,994.40), can currently qualify for a $479,888 purchase. The total mortgage amount with CMHC insurance would be $474,129.34 ($2,265.75 monthly mortgage payment).

Ratehub says the maximum purchase price for the same household, if they participate in the first-time home buyer incentive, drops to $404,858.29 when using the same minimum down payment (5 per cent at $20,242.91). The total mortgage amount would then be $400,000 ($1,911.50 monthly mortgage payment).

If the household took a 5 per cent incentive from the government (for resales) their mortgage amount goes to $378,947.37, and monthly payment is now $1,810.90.

If the household took a 10 per cent incentive from the government (for new homes) their mortgage amount goes to: $357,894.73 and monthly payment is now $1,710.29.

Will you be taking advantage of the new incentive?

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