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An example:

On a home costing $500,000, if the borrower puts up $25,000 and the CMHC puts up the same amount, the CMHC would then own five per cent of that home. So if, down the line, the house appreciates to $600,000 and the borrower wants to sell, they would have to give the CMHC five per cent of the sale price — $30,000 in this example — not the $25,000 the CMHC put down in the first place.

The $25,000 the CMHC put down lowered the mortgage by $25,000 so when the home is sold the mortgage payout would be $25,000 less. It is simply a return of capital.

There is no loss on that portion for the buyer. In fact there would be a small gain from lower monthly payments over the life of the mortgage.

There is no guarantee there will be any equity from a future sale. If the home loses value the CMHC shares in the loss.

If people don't have a down payment, they wouldn't have a house to earn any equity on.

I think the CMHC wants to eliminate much of the second tier lending at high interest for down payments, but they don't want to completely eliminate down payments.

Buyers need to have some skin in the game, either with their own down payments or future equity in the home.
 

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So some more details came out on the latest pointless scheme to help first time buyers, but I'm wondering if it ever makes sense for anyone, and specifically myself, to use it.

I'm 32, live in Calgary, have an income of about 100,000 and may buy a home in the next year or so, for about 350,000 - 400,000. I've got total savings of about 180,000 and about 110,000 of that available for a downpayment, although I probably would only put 20% down.

Instinctively, I don't see any reason for myself (or anyone) to use this new CHMC incentive, but I would be eligible to use it so it's worth investigating. I'd have to put down less than 20% and pay the CMHC insurance (but get a better interest rate), but I'd get an 'interest free' loan of about 17-20K. But also lose a portion of the potential upside (or downside).

Thoughts? Now that I've written that I'm pretty convinced it's not a good idea for me, but is there any situation it is a good idea?
OP did you go through with the incentive? I think the advice you are getting is coming at this from the wrong way. This is not an interest free loan of any sort. It is an equity share. Similar to how any business can raise capital by taking on debt or issuing equity. The mortgage is a loan from the bank, the federal incentive is selling 5-10% share of your house to the government.

The other point I don't see being discussed with the whole "keep the govt out of my house" perspective. if the government does accumulate a lot of residential RE on their balance sheet, are they not incentivized to prop up housing prices to avoid losses to the program? Maybe by letting the value of the loonie fall?
 

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OP did you go through with the incentive? I think the advice you are getting is coming at this from the wrong way. This is not an interest free loan of any sort. It is an equity share. Similar to how any business can raise capital by taking on debt or issuing equity. The mortgage is a loan from the bank, the federal incentive is selling 5-10% share of your house to the government.

The other point I don't see being discussed with the whole "keep the govt out of my house" perspective. if the government does accumulate a lot of residential RE on their balance sheet, are they not incentivized to prop up housing prices to avoid losses to the program? Maybe by letting the value of the loonie fall?
I think you've seen all the arguments now, but seem unswayed from pursuing the equity loan because you are stuck on the thought that the government is reducing your risk exposure in some meaningful way. Regardless, worse case scenario is that you lose money, and are burdened with excess paperwork from the government. Not an insurmountable problem, most likely. Best of luck.
 

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I would really like to hear some additional arguments for the against. The main point that seems to get repeated is people are paranoid about the government having a piece of your pie. Ok, so let's explore where that leads. Is there any scenario you can think of that the government can use a 5-10% equity in the property to force you to sell or evict you or otherwise force some unfavourable action at odds with the homeowner?
 

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I would really like to hear some additional arguments for the against. The main point that seems to get repeated is people are paranoid about the government having a piece of your pie. Ok, so let's explore where that leads. Is there any scenario you can think of that the government can use a 5-10% equity in the property to force you to sell or evict you or otherwise force some unfavourable action at odds with the homeowner?
The first thing I can think of is fees.
Aside from repaying the government 5% (or 10% for new builds) of your gained equity, the solicitor fees are higher - you pay 2 title registrations when you buy and 2 discharges when you sell.

Other negative is you will be limited when refinancing. Although it is possible to pull out equity at a future date, you will be restricted by the incentive amount + the portion owed. Example, purchase is 100k ($90k mortgage + $5k incentive). In 5 years, Value jumps to $125k. Essentially, you should be allowed 80% of market value so $100k in this example. However, you need to deduct the incentive + 5% of market value so $7500 less. Rather than getting $10k equity ($100 minus $90k), you can only get $2500.

As for pros, well it all depends on each situation. Yes, there will be a monthly savings on your mortgage payment and you will pay 0.90% less on CMHC fees. However, the sooner you sell and the greater the property appreciation, the more you end up owing which will most likely be more than what you saved.
 

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Discussion Starter #27
OP did you go through with the incentive? I think the advice you are getting is coming at this from the wrong way. This is not an interest free loan of any sort. It is an equity share. Similar to how any business can raise capital by taking on debt or issuing equity. The mortgage is a loan from the bank, the federal incentive is selling 5-10% share of your house to the government.

The other point I don't see being discussed with the whole "keep the govt out of my house" perspective. if the government does accumulate a lot of residential RE on their balance sheet, are they not incentivized to prop up housing prices to avoid losses to the program? Maybe by letting the value of the loonie fall?
Sorry, only just saw this.

No I haven't bought a house, and won't be using the incentive regardless. This isn't because I am afraid of the government owning part of my house, but because the deal is terrible and only makes sense in situations where one shouldn't be buying a house anyway. The posters on this thread helpfully confirmed what my intuition was, and I am grateful for that.

I am, however, glad the deal is terrible and hope that it is so terrible that virtually no one takes it up. Demand side policies such as this one are an awful idea, and create the exact opposite effect on the market that the government states it wants and should be encouraging (less demand for housing debt and more housing supply).
 

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Reduced Purchasing Power

I would really like to hear some additional arguments for the against. The main point that seems to get repeated is people are paranoid about the government having a piece of your pie. Ok, so let's explore where that leads. Is there any scenario you can think of that the government can use a 5-10% equity in the property to force you to sell or evict you or otherwise force some unfavourable action at odds with the homeowner?
Hello all, I am a first time poster with some insight from the within the mortgage industry (licensed mortgage agent in Ontario). The main negative for this incentive is that it reduces your buying power to 4 x income to a max of $120K income / $480k mortgage / $505K Purchase Price / $25.5K Downpayment. If you had an income of 120K and put the minimum downpayment (5% South of $500K + 10% North of $500K) with no outside debts at the qualifying rate of 5.19% that $120K would qualify for closer to $615K mortgage / $630K Purchase Price / $38K Downpayment. Granted these are not exactly equal($13K diferrence in downpayment) but no two mortgages ever are. We are a decently sized office within the GTHA and we have yet to write one of these deals. We've been close on a couple, but income became the exclusion. While this program is being adopted at greater rates in other regions of Canada, Toronto/Vancouver/Montreal are not great uptakers.
 

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Discussion Starter #29
Hello all, I am a first time poster with some insight from the within the mortgage industry (licensed mortgage agent in Ontario). The main negative for this incentive is that it reduces your buying power to 4 x income to a max of $120K income / $480k mortgage / $505K Purchase Price / $25.5K Downpayment. If you had an income of 120K and put the minimum downpayment (5% South of $500K + 10% North of $500K) with no outside debts at the qualifying rate of 5.19% that $120K would qualify for closer to $615K mortgage / $630K Purchase Price / $38K Downpayment. Granted these are not exactly equal($13K diferrence in downpayment) but no two mortgages ever are. We are a decently sized office within the GTHA and we have yet to write one of these deals. We've been close on a couple, but income became the exclusion. While this program is being adopted at greater rates in other regions of Canada, Toronto/Vancouver/Montreal are not great uptakers.
The fact that it is seen as normal to have such high mortgage:income ratios with such a low down payment is how we got into this mess in the first place. The government needs to be discouraging this, not throwing fuel on the fire.
 

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The fact that it is seen as normal to have such high mortgage:income ratios with such a low down payment is how we got into this mess in the first place. The government needs to be discouraging this, not throwing fuel on the fire.
I wouldn't say its seen as normal but the reality is that its indeed the norm. Its easy to say that the government should discourage it but if no one is borrowing, economy will take a hit. Its a double-edged sword. I think the government has a responsibility to keep the economy afloat - whether we agree with the incentive or not. We can't be relying on the government to bring consumer debt down, encourage living debt free or leading a frugal lifestyle. Its up to each individual to make that assessment. That's like asking the government to ban fast food cause it causes obesity. It will never happen.

It is what it is - some people sleep well with large debt, others don't. Just like you can walk just fine with a $30 pair of shoes, some people feel the need to spend $300, even if they can't afford it. All I can say is, be smart with your finances and not be influenced by others.
 
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