Your First Attempt
The government uses your desire to be a first-time home buyer to try and buy votes; taking direct aim at your financial bravery.
There is no financial risk to the government; it is not their money.
What’s another deficit to most governments?
I try not to make my blog about politics; I would love to find a way to make any country’s democracy bipartisan; this seems like the impossible dream.
(I would love to hear your ideas in the comment section at the end of this blog. I have added a link on my views on how politicians continue to exploit the taxpayers.)
It does not matter where you are in the world; governments are always trying to buy your votes.
For decades the governments have created the first-time homeowner program to give the illusion they are going to help you purchase your own home. Below I will outline all the hoops you have to jump through to qualify for this current program.
In the past, I believe some of the governments honestly had your best interest at heart.
When my wife and I purchased our first home; the federal government gave us a grant (Non-Repayable) for part of our downpayment, and so did the provincial government give us a provincial grant (Non-Repayable); it was great to see both levels of governments supported each other. I calculated the percentage of the total grants; the cost to both governments combined was 4.74% of the initial purchase price of our first-time home.
We secured our mortgage through CHMC and had to pay the insurance premiums for a high ratio mortgage.
High ratio mortgages are what many first-time home buyers have incurred over the decades.
New First-Time Home Buyers Program, 2019
The current Canadian federal government has announced it is going roll out it First-Time Homeowner program September 2, 2019.
According to Joannah Connolly :
The program will offer first-time Canadian home buyers an interest-free, payment-free loan, from a fund run by CMHC ( Canadian Mortgage Housing Corporation), matching the buyer’s down payment. This is up to five percent of the purchase on a resale home or 10 percent on a new-build or presale home.
Eligible first-time homebuyers, with a maximum household pre-tax income of $120,000 a year, who have the minimum down payment for an insured mortgage with CMHC, Genworth or Canada Guaranty, can apply for the funding in the form of shared equity mortgage with the federal government. The buyer’s mortgage plus the loan awarded cannot total more than four times their annual income.
The Tax Payer On the Hook Again
In other words, the Canadian Tax Payer is funding this program; and as taxpayers, we are going to charge no interest on these funds we are lending, the borrowers are not obligated to make any payments for 25 years and only repay the original amount of the loan.
The Government of Canada has allocated $1.25 Billion over three years for this program. If we only use 1% deflation of the 2019’s dollar through 25 years or 2044; what is the value of 1.25 Billion dollars in 2044 dollars?
Remember the government is lending these funds at 2019 dollar value and then collecting the balance only at 2044 dollar value.
Or think of it a different way; if we took $1.25 Billion and earned 1% on the total over 22 years; used 22 years as the government could take up to 3 years to lend the entire $1.25 Billion.
Doesn’t Add Up
Think about this for a moment; if inflation runs at 1% over 25 years and the first-time home buyer does not have to make any payments and only pays back the original amount of the loan with no interest what is the real cost to Canadian Tax Payers?
The government has decided they are going to loan new home buyers between 5% and 10% and CMHC uses $500,000 new-build home as their example. A first-time new home buyer can qualify for 10% on the new-build or $50,000.
Accessible and Sustainable Solution for Funding First-Time Home Buyers
If we were to implement the following recommendation, we would not have to have each government chase our vote during each federal election.
Outline and Recommendation
There is such a low rate of default on residental mortgages in Canada; lets as taxpayers use this knowledge to our advantage.
The most straightforward solution would be to use the high-interest rate insurance premiums that the first-time home buyers pay to secure their mortgage.
Take the insurance premiums to create a Non-Repayable Grant for first-time home buyers, and only lend each year the funds generated from the premiums.
No Risk; Lot of Rewards
Because residental mortgages in Canada rarely default; we as Tax Payers see No Risk.
The more we can help maintain strong momentum in the housing industry the greater the positive impact on the economy.
The rewards are higher paying trade jobs through the construction of new homes or renovations done to older homes for first-time home buyers.
Think of the jobs created by all of the retail jobs for outfitting the buyer’s homes with furniture, electronics, housewares, and so much more.
A self-funding program; what a concept. Are you in?
Listen to this guest podcast episode about real estate success; if you are in.