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The idea of jumping on the property bandwagon without considerable financial leverage is an idea of the past. With the average house price skyrocketing across this Province over the last 14 months, many who may have been planning to buy into the property market have been financially squeezed out.
Yes, we are seeing unprecedented borrowing costs on both fixed and variable mortgage rates and property appreciation going through the roof, however, the demands that are imposed on those wanting to get into the housing market have never been higher. According to the Toronto Real Estate Board, the average price of a detached dwelling has ballooned to over a Million as of April 2021 and the numbers tell the story.
Existing homeowners are seeing hundreds of thousands of dollars in year-over-year appreciation. Good news for those that currently own. Not so good news for those scrambling to obtain mortgage financing and facing multiple bidding wars on a property that they may have fallen in love with. Properties are routinely selling 150,000 dollars over the advertised asking price.
Even with ample funds saved for a downpayment on a property, any help to boost the overall amount of money a borrower can put down will help ease the financial sticker shock of the final selling price of so many of the current properties on the Toronto and GTA housing market.
The Government May Be Able to Give a Financial Boost
In September 2019, the Federal Government introduced the First Time Homebuyers Incentive. In a directed response to the recognition that first-time homebuyers may be struggling to come up with the funds to get onto the increasingly elusive property ladder, the Government could now step in and provide matching government funds to increase buying power. The government incentive program offers 5% to 10% matching funds for a downpayment depending on the property in question. This is commonly referred to as a shared equity program. Any funds that the government matches for a downpayment, these funds will go back to the government in the form of equity built in the property when the owners decide to sell or after the course of the loan.
In other words, if the Government provides 10% of the downpayment then this 10% will go back to the Government from the property’s equity throughout the loan or when the property is sold. The buyer will not need to make any monthly payments (which can be viewed as short-term good economic news.)
However, the Government has invested in your property and therefore is essentially part owner. The household income to qualify for the program was capped at 100,000 and the price of the property that potential borrowers could buy stood at 505,000 dollars.
That Was Then, This Is Now
2021 has been nothing short of miraculous in terms of the gains we have seen in the Ontario property market. The Government has not been standing on the sidelines. This week saw new changes to the First Time Homebuyers Incentive. Here it is:
The Maximum eligible household income has been raised to $150,000
First-time homeowners in the program can borrow up to 4.5 times their household income, up from the current 4 times
The cap on the price of a house that the Government will invest in has been changed to 722,000 from 505,000 dollars
What Does This Mean for you?
Like anything in life, it merits reading the fine print and researching what this Government initiative will mean for you. On the plus side, the extra funds being kicked in from the Government may just make the difference between being kept from the first rung of the property ladder. Conversely, this does represent more debt at the end of the mortgage loan or when you wish to sell. Can you live with having the Government share your equity?
You will not have to make monthly payments and appreciation in properties continues to be significant. So at the end of the day, you need to view this, like so many other financial decisions, as an opportunity cost. Is the money worth the cost of only partially owning your home?
The key to making any decision is to have all the information in hand before moving ahead. Contact me to discuss all your mortgage needs and let my expertise guide you to making the decision that is right for you and your family.
