On September 2, 2019 the federal government launched a new program called First-Time Home Buyer Incentive (FTHBI). The program is for interested first-time home buyers to help ease the carrying cost of a mortgage. The program offers buyers up to 10% of the purchase price (5% for resale homes, 10% for new builds) as a no interest, shared-equity loan to put towards the downpayment.
Who is eligible?
First time home buyers, purchasing a primary residence. At least one homeowner must be a first-time home buyer, as defined by the following:
- you have never purchased a home before
- you’ve recently experienced a breakdown of a marriage or common-law partnership
- in the last 4 years, you did not occupy a home that you or your current spouse or common-law partner owned
And you must have the minimum downpayment. The minimum is 5% on the first $500,000 and 10% for any amount above that. For this program, you must have less than 20% downpayment, ensuring that the mortgage must be mortgage default insured. The downpayment must be from traditional sources, such as savings, RRSPs or a non-repayable gift from an immediate family member.
You are looking to borrow a maximum of 4 times your annual household income and your total household income must be less than $120,000 before taxes. Borrowed amount is the mortgage amount plus the incentive.
How does the FTHBI program work?
If you meet the eligibility requirements, the Government of Canada will lend you up to 5% of the purchase price on a resale home and up to 10% on a newly built home. The incentive is registered as a second mortgage on the property. It is applied as downpayment on your purchase. Thus, reducing the mortgage amount, mortgage payments and the default insurance premium that is required on all default insured mortgages. The incentive must be repaid after 25 years or when the home is sold, whichever comes first. You can refinance, renew your mortgage, switch your mortgage to a new lender if you like, the loan will still be there in second place. It can be repaid in full at anytime prior to the 25-year mark. No payments are required and no interest will be charged on the loan.
The incentive is a shared equity mortgage, which means that when you repay the loan you will have to pay the % (5 or 10%) borrowed based on fair market value at that time.
For example, if you purchase for $400,000 and receive an incentive of 5% ($20,000) and the fair market value at the time of repayment is $500,000, you will have to pay $25,000 (5% of $500,000). On the flipside, if the fair market value has gone down and the home is only valued at $350,000, you will have to repay $17,500 (5% of $350,000).
If you think this might be a program you are interested in exploring, please give us a call to discuss.
For more information you can also check out the government website. https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive It contains all the information on how to qualify and how to calculate what you will qualify for. Please keep in mind that you must still qualify for a default insured mortgage, as you would without the incentive program.