Why you just might want stick with your own savings when it comes to purchasing
First Time Home Buyers and Realtors who think the new Trudeau announcement is going to benefit them might be misinformed.
I’ve been asked quite a bit by First Time Home Buyers and Toronto Real Estate agents what I think about the new incentives recently announced to help Canadians wanting to purchase their first home.
Let’s think about this scenario:
You’re house hunting and are planning to utilize the First Time Home Buyers (FTHB) new CMHC incentive for an extra 10% in downpayment thanks to the government. That’s great news right?! Hold on cowboy (or cowgirl) not so fast. There’s a catch.
Now the government has a 10% stake in any upside in the selling price. That’s right…in addition to you owning the home along with your bank, the government also has a piece of the pie.
Now lets assume years go by and you’ve renovated your little home – new landscaping, deck, kitchen, maybe added another bathroom.
You’ve put a lot of work making your place look 100X better than when you bought it and it shows.
So now the time comes to sell your home, and you’ve gently been reminded by your lawyer on closing that the Canadian Government which securitized your loan way back when you purchased now gets to share in your profit to the tune of a 10% equity upside.
Let’s break the numbers down:
Suppose you purchased a home for $400,000 with 5% of your own money, and had the government kicks in another 10% ($40,000) for the down payment.
Now it’s 10 years later and that home is worth $600,000 but the government’s share is now $60,000.
That’s a whopping 50% ROI for the government
Not bad at all for the government. But that’s $20,000 that you could have kept. Not such a good sounding plan now is it?
Maybe it’s time we talk.