Where the Shared Equity Incentive went wrong!

So a couple of months removed from the new shared ownership program with CMHC and what has the effect been? Well in our office it has been nothing at all!

Here is why! In the GTHA (Greater Toronto Hamilton Area) you can qualify using up to a 39% GDS ratio (GROSS DEBT SERVICE). So, if you make $120 000/year in family income to use the incentive you can only have a maximum mortgage of $480 000. But if you don't use the incentive you can qualify for $550 000 as a maximum mortgage. So what ends up happening is you are artificially limiting your borrowing power to reduce your monthly cash outlays on your mortgage payment.

So what does this reflect as a monthly payment? A $530 000 purchase would require you to put a down payment of $28 000 (5% of the first 500k 10% of the 30k). The government will match up to $26 500 in down payment. The savings generated by our government's shared ownership of your home? Approximately $120 per month. Now that could be a real game-changer for your monthly cash flow. But realistically it's not even 1 trip to the grocery store for a family of four.

If the government had allowed for the program to reach our traditional 39% GDS with the incentive it would have helped people qualify for more. But if you can already qualify for more on your own...then I feel they missed the mark on this program.

One thing I can say I have seen clearly as a Mortgage Broker of almost 15 years; people's lifestyles adjust to the cash flow that is available. I would venture to suggest that you keep paying that $120 per month in extra mortgage payments. That way when you go to sell you keep 100% of the profits. Not 95%! Especially considering your primary residence sale is one of the few points in life where you are not taxed on your Capital Gains. Well, at least not yet!

I am available to expand on this or any other Residential Finance scenarios. Feel free to call me at 905-334-9111 or email [email protected]