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The Federal Government is making it easier for middle class Canadians to buy their first home with the introduction of the Shared Equity Mortgage Provider Fund as part of the First Time Homebuyers Incentive (FTHBI) The incentive will be available to first-time homebuyers with a qualified annualk income up to $120,000. The idea is that it will reduce the down payment amount required by the home buyers and reduce the monthly mortgage costs. With a catch of course. The Government of Canada will become a 2^nd mortgage holder on your property with the financial institution loaning you the money to purchase the home being the 1^st mortgage holder. It is a 5-year, $100 million lending fund aimed to help eligible Canadians achieve affordable home ownership. The fund is being administered by CMHC. The shared equity mortgage could be 5-10% of the property value depending on whether it is for the purchase of an existing home or new home construction. At first glance, this may seem like a fantastic opportunity. However, as with any program there are pros and there are cons. It is important to look at each in detail before deciding if this is the right decision for you. First, let’s look at the upside:

• Lower monthly mortgage payment.

With a down payment, the amount you borrow is less, and the payments you make each month are less. You are not required to pay back the government portion immediately, enabling you to enjoy lower monthly payments for a period of time (more on that below)

• Lower default insurance premium.

CMHC charges an insurance premium that changes with every 5% we put down. You pay the highest premium at 5% down, less at 10% down and at 20% down there is NO premium. With this program you are able to get to the 10% down mark immediately resulting in lower premiums.

• Lower interest paid on 1^st  

Because the mortgage amount you borrow is less, the interest you pay back is less.

• If value of property drops, repayment is based on lower fair market

Payment is based on a percent of value of the home. If the property is sold for less than the purchased value or the value has depreciated, the home owner could pay less than they were loaned.

• No interest or principal payments to be made on the 2^nd mortgage as repayment is based on fair market value when property is sold or at 25 year mark whichever comes

The homeowner is not required to pay interest on the loan. Payment is based on the value of the home at the time it is repaid.

• Program provided by all 3 default

No real benefit to the consumer other than the program is easy to qualify for because all three insurers support it.

• Refinancing first mortgage will not trigger repayment of 2^nd mortgage

The homeowner can refinance the home without obligation to pay out the second mortgage at any time prior to the repayment deadline.

• 2nd can be repaid at any time without

You can pay the loan off at any time without penalty. Now, let’s take a look at the downside:

• Government of Canada holds a 2^nd mortgage on

I feel like that one is self-explanatory. The government now owns a piece of your home.

• If value of property increases (market / renovations), repayment is based on higher fair market

You could be paying back more, and in some cases, much more, than you borrowed initially. This could equate to a very high interest rate depending on the value of the home, and the government’s ‘equity portion’ at the time of repayment

• Incentive cannot be ported to a new

The government equity loan will have to be paid out if you are selling and them buying a new home.

• When looking to sell home, approval to sell must be obtained from Program Administrator.

You will have to get approval from the government to sell your home at a specific price.

• Program Administrator has the right to dispute sale

The government can disagree with you on the price you have chosen to list/sell your home for.

• Lawyer at close will have to obtain funds from 2 different sources, lender and government.

May cause increased legal fees and increase in closing time.

• Lawyer will have to prepare and register 2 mortgages so higher legal fees.

I think this speaks for itself.

• To sell your home you may need an appraisal done to determine fair market value, additional

Again, self-explanatory

• Additional fees may incur throughout the life of the mortgage if you are looking to switch the first mortgage to a new lender or you are looking to refinance your first mortgage. The 2^nd mortgage will have to be postponed (meaning they will have to agree to be put on hold pending this transaction).

And, more potential costs.

• Additional paperwork and process for client, lender and lawyer once client has accepted offer.

Closing on a property could take more time.

• Lawyer must be given no less than 2 weeks prior to close to request funds from Government of

Another delay in closing on the property. So, when would it make sense to take advantage of this new incentive? It seems that if you are anticipating this as a short-term solution to help you get into a home more quickly, or have a short-term cash flow crunch and your intention is to pay off the government loan quickly, this program could work in your favor. If, however, you carry this government equity loan for any length of time, you risk paying back more, and in some case, much more, than you borrowed. As we know, the road is paved with good intention, so you might want to ensure you have a solid plan in place to pay back the equity loan quickly before getting into bed financially with the government. Shawna Snair Premiere Mortgage Centre shawna.snair@premieremortgage.ca 902.448.2007