The 2019 federal budget brings a financial boost to homebuyers, workers and low-income seniors. Here are some important highlights.
While the 2019 federal budget may have been overshadowed by other headline-grabbing politics, a healthy majority of Canadians approve of some of the budget’s key policies. This isn’t too surprising, given that there are some considerable changes that will benefit middle-class and lower-income Canadians.
Of particular interest, there was a significant focus on housing, with a number of policies introduced to help budding first-time homebuyers gain a financial boost to jump onto the property ladder. But new homebuyers aren’t the only ones to potentially benefit from this budget. Older Canadians, workers looking to update their skills, and people with rare diseases were all promised financial help from the government.
Here are details of some of the most pertinent policies and how they could affect you:
Help getting onto the property ladder
The budget contains two key policies that could help Canadians buy their first home. The first is an extension of a policy that has been around since 1992.
The Home Buyers’ Plan has allowed people to withdraw $25,000 from their RRSP savings to go towards their down payment. The new federal budget proposes to increase this limit to $35,000. (According to the Government of Canada, this would be available for withdrawals made after March 19, 2019.)
If you are buying with your spouse or common-law partner, this means an extra $20,000 towards your down payment.
The program in action:
Previously, if you were looking to buy a house costing $175,000 and you could only take out $25,000 through the Home Buyers’ Plan for the down payment (14.28% of the purchase price), you would trigger CMHC or Genworth Mortgage Default Insurance in the amount of $4,650.
However, with the new policy, a $35,000 Home Buyers’ withdrawal from your RRSPs would amount to a 20% down payment. This would help you avoid mortgage default insurance all together. In this case, you would save $4,650.
First-Time Home Buyer Incentive opens even more doors
This new fund will be administered by the Canadian Mortgage and Housing Corporation or CMHC in short (a government body) and is expected to help lower the mortgage payments for 100,000 first-time homebuyers.
The program will provide you with a 5% extra down payment on the re-sale home or 10% extra down payment on a new build home. In exchange for this extra down payment, CMHC will take the same percentage (5% or 10%) as a shared equity position in your home in the form of “Shared Equity Mortgage.”
To qualify for the First-Time Home Buyer Incentive, you must have a minimum down payment of 5% (but less than 20%) and a household income under $120,000. In addition, the purchase price can be no more than four times the buyer’s household income.
By accessing the incentive, it can offer you tens of thousands of extra dollars for first-time homebuyers to use as a down payment. And it could help you enjoy lower monthly mortgage payments, which could help ease your transition into home ownership.
The program in action:
Let’s say a first-time homebuyer wants to buy a newly constructed home that costs $400,000. To do this, they’d have to come up with a $20,000 down payment. This means they’d have to take out a mortgage for $380,000 to cover the rest of the purchase price.
However, under the new program, CMHC could kick in $40,000 toward the purchase price or 10% extra down payment, in exchange for a 10% stake in the home. That brings the buyer’s mortgage down to just $340,000 for the home, instead of $380,000. On a standard mortgage at 3.5% interest, that translates into a monthly mortgage payment more than $200 lower than it would have been for the 25-year life of the loan. That’s more than $2,700 a year in potential savings.
The catch is that the homeowner eventually has to pay back the CMHC’s stake in the property — but not until they sell the house (or sooner if they choose to do so).
Stayed tuned as precise details of how the program works won’t come out until later in the fall.
Help improving your job skills
For those people looking to get an advantage in the job market, this year’s federal budget is introducing the Canada Training Benefit. It will allow Canadians to take time off for training to get the skills they need for better-paid jobs.
The benefit offers a credit of up to $250 per year to put towards training costs. It also provides a training support benefit through EI, with up to four weeks of paid leave at 55% of average weekly pay, within a four-year period.
Making drugs for rare diseases more affordable
The budget is introducing a national strategy to tackle the high costs of drugs used to treat rare diseases. The federal government will work with provinces and territories to ensure that Canadians with rare diseases have improved drug coverage that is more affordable and consistent.
Increased Guaranteed Income Supplement (GIS) for low-income seniors
Older Canadians will be able to earn more money without it affecting their GIS benefits. Previously, the most that could be earned was $3,500, but this will increase to $5,000 and now includes self-employed income.
Beyond the $5,000 limit, there will also be an additional partial exemption of 50% that would apply to a maximum of $10,000 of income.
Whether you’re searching for a first home, considering switching careers, saving money for retirement or need to improve your finances in general, it’s helpful to understand the changes to government rules and programs that can be in your favour.
Your ACU advisor can explain how the new budget policies could impact you and get you closer to your goals. Book an appointment today.