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The government’s latest answer to housing unaffordability — giving first-time borrowers more tax breaks to build a down payment — has officially launched.

It’s called the First Home Savings Account (FHSA), and in a nutshell:

• You must be a first-time buyer (FTB), as the feds define it.
• You can save up to $8,000 a year ($40,000 lifetime)
• Contributions to your FHSA are tax-deductible
• Gains and withdrawals are tax-free if used to buy a qualifying principal residence.

Essentially it's a gift from the tax gods. For someone earning $80,000, for example, deducting $8,000 might save anywhere from $2,200 to $3,000 in tax, depending on the province.

Folks can get a quick and dirty idea of potential tax savings—based on their income—using this EY RRSP contribution calculator.

Note that most financial institutions, including big banks, aren’t live with FHSAs just yet. QuestTrade is one popular exception. It's already accepting new account applications as of today.

Good-to-know points

• Unlike the Home Buyers’ Plan (HBP), FHSA funds need not be repaid
• Non-FTBs can still use one so long as they didn’t live in a home they or their spouse/partner owned in this or the prior four calendar years (i.e., after 2018)
• You can carry over FHSA contribution room to the next year
• Users have 15 years to apply FHSA funds to a home purchase
• Those who don’t buy a home can transfer FHSA funds to an RRSP
• Non-“qualifying withdrawals” are added to your taxable income.
• Unlike an RRSP, you can't deduct contributions made in the first 60 days of the year from your prior year’s income.
• You can use both the FHSA and HBP to buy a qualifying home.
• Two FHSAs can be used to buy a home if both buyers are first-timers.

Here’s CRA's page with complete details.

Strategies & considerations

Due to the extra tax benefit, using an FHSA before an RRSP or TFSA is an easy call for future home buyers.

For parents who want to help their kids own, tax advisor Jamie Golombek suggests gifting children $8,000 a year for their FHSA. That way, their kids can invest and grow savings early on — and enjoy a tax deduction.

FHSA deductions can even be deferred (carried forward) to a future year when you’re in a higher tax bracket, saving even more tax. A similar strategy applies to RRSPs.

Marketing opp

Ottawa doesn’t hand out free money to above-average-income earners very often. So most prospective FTBs who plan to save and buy should jump on this opportunity.

That makes today’s FHSA launch a prime time to contact past and prospective clients. Offering to be a resource and central point of contact for clients with FHSA questions should pay dividends. If you're a mortgage or financial planning professional, a simple informational bulletin celebrating this money-saving opportunity is all it takes—preferably one linking back to your website for more details.

Just make sure to disclaim information as needed so it's not perceived as tax or investment advice. For that, refer to tax and investment professionals or point clients toward public information sources.

Note: MLN members are free to use snippets from this article in their marketing emails, newsletters, social media and websites subject to our own little disclaimer, which is:  This is general information that's subject to change. It's provided as-is and is not meant to be advice, including but not limited to tax, legal or investing advice. Caveats apply to some of the points mentioned. Readers should consult a tax professional for guidance applicable to their circumstances.

This week, capital markets executives were alarmed by an esoteric blurb buried deep in Tuesday’s federal budget.

In that passage, the government hinted at terminating the $260 billion Canada Mortgage Bond (CMB) program.

For lenders—especially non-deposit-taking bank competitors—that could be a problem. They rely on CMBs to fund their mortgages.

Hundreds of thousands of floating-rate mortgagors have one primary goal: maximizing monthly cash flow.

For them, fixed-payment variable-rate mortgages are fantastic when rates are soaring —  not so much when rates are sinking. When the prime rate drops, these people also want their payments to drop.

The government of Canada just dropped its 2023 budget. Like last year, there were no major mortgage bombshells.

Below is a quick rundown of the budget updates with lending relevance.

Rate and inflation impact

We haven't had a chance to dive deep into the inflation ramifications but suffice it to say, the budget's projected $43 billion of new deficit spending over six years won't help keep inflation and mortgage rates down.

Nor will federal debt, as a proportion of GDP, climbing from 42.5% to 43.5%.

On a positive note, however:

• Government bond issuance is expected to drop 7% this year (less supply keeps rates lower, other things equal)
• Federal debt-to-GDP is projected to decline from 43.5% to 39.9% by 2027-29 (although, government debt forecasts and long-range weather forecasts have much in common).

In practice, the effects of this government over-borrowing won't be noticeable to your average Joe borrower — and that's what our leaders count on.

What is noticeable is the fact that high inflation has hammered home sales (-40%) and average national prices (-18.9%, per CREA) since the February 2022 peak.

The budget states:

"Continued progress on reducing inflation will be needed over the coming year to ensure that this period of elevated inflation is only temporary. As a result, there remains uncertainty about how long interest rates around the world will need to remain elevated."

For what it's worth, Finance Minister Chrystia Freeland says the measures in her budget are "carefully targeted" to avoid stoking inflation.

New lending-related policies

Here's what the Liberals have proposed:

1. Usury adjustment: The government intends to lower the criminal rate of interest from 47% (annual percentage rate) to 35%. According to the law firm Cassels, “'Interest' is defined broadly under the Code and includes all charges and expenses in any form, including fees, fines, penalties, and commissions."
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2. Distressed mortgagor relief: The Financial Consumer Agency of Canada will publish a guideline to "ensure that federally regulated financial institutions provide" mortgage borrowers with relief if they hit hard times, including extending amortizations, adjusting payment schedules, or authorizing lump-sum payments. The government says this guideline "will ensure that Canadians are treated fairly and have equitable access to relief, without facing unnecessary penalties, internal bank fees, or interest charges..." In practice, most mainstream lenders and all default insurers already offer such borrower "workout" programs. This measure would seemingly formalize and publicize it, potentially leading to higher non-payment rates (as more Canadians take advantage of perceived lender leniency).
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3. Lower CMB costs: The government "intends to undertake market consultations" by the fall on consolidating Canada Mortgage Bond issuance within the government’s regular bond issuance program. The goal is to "reduce" the cost of CMBs, which cost more to issue (carry higher yields) despite having the same credit rating as regular government bonds. The Department of Finance says it would "reinvest savings into important affordable housing programs."
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4. FHSA to launch in four days: The government reiterates that financial institutions can start offering the Tax-Free First Home Savings Account on April 1, 2023. The FHSA is meant to help first-timers save for a down payment. It's a new registered plan that allows first-timers to save $40,000 total ($8,000 a year) on a tax-free basis. Contributions will be tax-deductible, and withdrawals to purchase a first home will be non-taxable. "Tax-free in; tax-free out," they say. The handful of big banks we spoke with claim they'll have FHSA account applications available on launch day, but not through all channels (some will only offer applications online as of April 1, and not via human advisors).
   
   Here's an FHSA example from the Budget:

Here's an overview from RBC that compares all the registered plans.

Anticlimax...

All in all, this budget was mostly a non-event for Canada's mortgage market. And that may be a good thing.

Albeit, it was all crickets for hoped-for measures like raising the default insurance property value limit to $1.25 million. The government now seems to view this idea, a policy it promised a few years ago, as a stimulus measure. As a result, average-priced homes in cities like Toronto and Vancouver will remain accessible solely to uninsured borrowers, those blessed with big down payments.

A lot of mortgage brokers will be surprised it took this long.

First Swiss, a private mortgage lender known for its seemingly insane high-fee, high-rate, 95%-LTV last-resort second mortgages, has gone belly up.  

A receiver was appointed after the Financial Services Regulatory Authority of Ontario (FSRA) made a court application on an “urgent basis.” This followed “very serious” allegations of wrongdoing by First Swiss investors earlier this month.

“This appears to be a case of fraud rather than a failure to meet regulatory requirements,” FSRA told MLN. “The perpetrators of the fraud have yet to be determined, but it appears certain employees of First Swiss took steps to conceal required reporting information from the regulator, lenders and investors,” said FSRA spokesperson Russ Courtney.