The Shared Equity Mortgage Provider (SEMP) Fund program helps eligible Canadians such as first-time homebuyers achieve homeownership.
This $100-million lending fund given by the Government of Canada helps “shared equity mortgage providers” (a list of lenders will be released at a later time) offer an alternative homeownership model. The Fund will help attract new lenders to take part in shared equity mortgages and encourage additional housing supply and home sales. The Shared Equity Mortgage Provider Fund will be offered as insured mortgages only and is a 5-year program to be launched on July 31, 2019.
The program will offer eligible home buyer loans from two possible funding flows:
Preconstruction costs to commence new housing projects that provide shared equity mortgages to home purchasers.
2. Shared Equity Mortgages (SEM)
Funding of shared equity mortgages provided by the proponent directly to home purchasers.
How does this program act as a first time home buyer’s incentive?
The minimum down payment that is required is still 5% and borrowers will still need to pass the stress test, however, the Government will loan an additional 5-10% of the purchase price. In turn, the Government will obtain an equity stake in the subject property.
For new builds or new construction, the Government will lend up to 10% of the purchase price. For resale properties, the loan amount will be no more than 5%.
The loan (not grant) will have to be repaid within 25 years although it can be repaid prior to this loan without interest or penalty.
If the property is sold or the mortgage is paid off through refinancing for example, prior to the 25-year mark, the total loan must be repaid in addition to any sale/refinance proceeds that may be owing to the Government. Since they are obtaining a share in ownership, they will be entitled to a share of the property.
For example, if you purchase a property for 360,000, and the Government loans you 5% of the purchase price or $18,000, they will obtain a 5% ownership in your property. If you sell your property down the road for $500,000 for example, you will owe the Government $25,000 which includes the original $18,000.
If you sell at a loss, the Government may have to swallow the costs (this part still to be ironed out).
As more information emerges, we will get a better picture of this plan to help home buyers buy a home and help with housing affordability.
For more information, call (647) 773-4849 or visit www.coluccimortgages.com
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929