The new $10,000 bonus for first-time buyers of new homes will likely help a lot of potential buyers make the leap into the real estate market, a mortgage expert says.
Ryan McKinley, mortgage development manager at Vancity, said he’s had a lot of calls from buyers seeking to understand the bonus, but no one who has yet bought a home because of it.
“Mortgages have been top of mind for many people lately, and the calls that I’ve been getting have been in regard to clarity — what this is, and can they take advantage of it,” McKinley said. “Spring tends to be a popular buying season.”
The bonus, a one-time refundable personal tax credit, equal to five per cent of the purchase price of a home to a maximum of $10,000, was announced last month in the provincial budget. The bonus is still subject to legislation, which is expected to be introduced sometime this spring.
“I think it’s fantastic,” McKinley said. “I think it will definitely make it easier for people to get into the real estate market and if they’re thinking about it, that might be the deciding factor.”
He said because the $10,000 will come directly to purchasers in the form of a cheque, it will be possible to apply it in several different ways. Someone could take a loan from their parents or a line of credit from a bank to make a down payment, then repay it when the bonus comes through.
“At Vancity, we do offer the option to, with qualification, use the $10,000 now and pay it back when you get the rebate,” McKinley said, but added the borrower would still need enough income to qualify for the loan.
“The majority of our members would qualify for that,” McKinley said. “There would be some interest charges, so we would need to go over that with any members considering this.”
Another option would be to take the $10,000 and use it to pay down the mortgage.
“You would save $17,000 and 2.5 years on your mortgage if you used the $10,000 rebate on a $200,000 mortgage at 3.5 per cent over 30 years,” McKinley said. “But you have to ensure that your institution allows prepayment privileges to do that. I would advise people to call up their branch or mortgage professional to go over how much they can save — it’s a very quick calculation.”
To qualify for a $200,000 mortgage, which would require a $10,000 down payment and qualify for the maximum $10,000 bonus, a person would need to earn about $42,000 a year, McKinley said. He used the same 30-year amortization and 3.5-per-cent interest rate to calculate the $895.30 monthly payment such a mortgage would require. McKinley said there would be about $330 a month on top of the mortgage payment for property taxes, heat and strata fees.
“A lot of people are surprised at how much they can afford when they actually sit down with someone,” McKinley said.
Another option would be to put the $10,000 into a registered retirement savings plan, then pay any resulting tax refund against your mortgage, McKinley said.
“That’s kind of the best of both worlds,” he said.
The bonus will be reduced based on a buyer’s or couple’s net income. For single people, the bonus is reduced by 20 cents for every dollar in net income over $150,000 (it’s reduced to zero at $200,000 net income). For couples, the bonus is reduced by 10 cents for every dollar in family net income over $150,000 (it’s zero at $250,000 family net income).
The bonus, which is applicable to new detached houses, duplexes, townhouses, condos, mobile homes, floating homes and co-operative housing units, and applies to homes where the HST is now payable. McKinley said Vancity also has a “mixer mortgage” where roommates can go together to buy a home they wouldn’t be able to buy otherwise.
“It also works well for parents and children, because the parents can own part of the home as an investment, while it helps the child get into the market,” McKinley said. “It definitely helps people get into the market younger.”
The bonus could be split between two purchasers, but only one bonus will be paid per property.
Once the legislation is passed, application forms will be made available, and the bonus should be paid out soon after. The bonus ends March 31, 2013, when the harmonized sales tax is replaced by the goods and services tax.
For more information, call 1-250-387-3332BY TRACY SHERLOCK, VANCOUVER SUN