Legitimate Support for New Home Buyers

It's a quandry. We want governments to help first time buyers get a good start, but we don't want to see the abuses that were involved in the sub-prime mortgage problems in the US.

Here is what legislators in Ontario, Canada, have come up with, and I would appreciate your comments on whether or not this sounds like a good idea:

- The provincial government (think State goverment in the US) provides funds to the local municipalities (counties).

- The local municipalities use the funds to set up programs that generally look like this:

- first time buyers are given a loan that amounts to the equivalent of a down payment on a moderately priced home (up to $7500);

- the purchasers need to qualify for a mortage for the remaining 95%;

- no interest or principal is payable on the loan for 20 years;

- if the purchasers stay in the home and meets all other conditions of the loan for the 20 years, the loan is written off and never needs to be repaid;

- if the purchasers decide to sell the home or rent it out before the 20 year period is over, the purchasers need to repay the original loan plus 5% of the increase in the value of the home.

From my perspective, this sound like a good idea, because there are many credit-worthy families who are capable of making a mortgage payment who are held back because they can't manage to save up the money for a downpayment. This gives them a start, but, if the conditions hold, it is likely to cost the goverment little or nothing in the end because most of these folks will decide to sell and upgrade long before the end of the 20 year period.

Does this make sense, or is it flirting with the same problems that led to the recent financial mess?

Bob