The First Time Home Buyer Incentive (FTHBI) is a shared-equity mortgage aimed at middle-class first-time home buyers, designed to lower their monthly mortgage payments without increasing the amount they need to save for a down payment.
Canada’s First Time Home Buyer Incentive
- How does the First Time Home Buyer Incentive work
- Why is the First Time Home Buyer Incentive important for Canadians?
- What to consider before getting the First Time Home Buyer Incentive
- Do I qualify for the First Time Home Buyer Incentive?
- Will the First Time Home Buyer Incentive really help?
How does the First Time Home Buyer Incentive work?
For buyers who qualify, the government puts up five per cent of the price of a resale home, or either five or 10 per cent of the price of a newly constructed home. The incentive is a second mortgage on the title of the property, but no regular principal payments are required. The loan is interest free, and it can be repaid at any time without incurring penalties.
Why is it important for Canadians?
A recent survey conducted by Leger on behalf of RE/MAX reveals that many Canadians continue to struggle with housing affordability. To help Canadian home buyers get their foot in the door, the federal government has offered an incentive, to help carry the weight of those hefty mortgage payments. The incentive took effect in September 2019, with $1.25 billion in funding earmarked to the program over the next three years.
Despite the FTHBI being in effect for a number of months now, confusion continues to swirl. Is it a loan? With no interest or regular payments? And no definitive dollar amount to be repaid?
What to consider before applying for the First Time Home Buyer Incentive
The FTHBI is a loan based on the fair market value of the property.
- The loan must be repaid within 25 years of the date borrowed or when the home is sold, whichever comes first.
- While the loan is interest free, it’s a “shared equity mortgage” which means the government shares in any gains on the property value.
- Alternately, if your property value takes a hit, your repayment amount to the government will be less than the amount borrowed.
For example, let’s say you took the five-per-cent incentive on a home priced at $200,000 (wishful thinking!), which would be $10,000. If you sell your home for $300,000 or its value increased to $300,000 at the 25-year mark, you would have to repay five per cent of the current value, or $15,000. On the flip side, if the home’s value decreased to $100,000, you’d only have to repay $5,000.
Do I qualify for the First Time Home Buyer Incentive?
The FTHBI is aimed at helping middle-class home buyers who need a boost. Thus, in order to qualify:
- the borrower must be a first-time homebuyer
- the borrower must have a household income of less than $120,000
- the mortgage is capped at four times the maximum household income of $120,000, or $480,000. This means the average price of a home would be $500,000 to $600,000, depending on the down payment.
New qualification rules take effect in Canada’s priciest cities
Recently, new FTHBI eligibility criteria were announced for those buying a home in Canada’s priciest markets of Toronto, Vancouver and Victoria. In these cities, in order to qualify, the first-time homebuyer:
- should have a maximum household income of $150,000 (increased from $120,000)
- can borrow up to 4.5 times their household income (increased from 4 times)
This would increase their buying power to roughly $722,000, up from $505,000. The firmer rules still apply for all other regions in Canada.
Will the First Time Home Buyer Incentive really help?
Critics have questioned the value of the FTHBI, arguing that it will do little to help homebuyers in Canada’s priciest housing markets – those people who need the incentive the most. The first iteration of the incentive was originally capped at $480,000. According to the RE/MAX Canadian Housing Market Outlook Report, this is where home prices in these cities sat in 2020, and where they’re expected to go in 2021:
$918,883 (2020, January1-October 31)
$974,015 (estimated in 2021)
$1,270,000 (2020, January1-October 31)
$1,320,800 (estimated in 2021)
$778,854 (2020, January1-October 31)
$817,796 (estimated in 2021)
Furthermore, media had reported that only one-third of applicants for the incentive were from Canada’s largest cities, and homebuyers don’t seem too keen on the idea of the government having a stake in their home.
RE/MAX’s 2021 Housing Affordability Report revealed that homebuyers were employing some creative measures to assist with their purchase, including co-ownership, multiple families residing in a traditional single-family home, and financial assistance from parents.