A recent survey conducted by Leger on behalf of RE/MAX reveals that many Canadians continue to struggle with housing affordability. To help homebuyers get their foot in the door, the federal government has offered a First Time Home Buyer 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 First Time Home Buyer Incentive 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? Here’s some clarification on how it all works.

What exactly is the First Time Home Buyer Incentive?

The First Time Home Buyer Incentive is a shared-equity mortgage aimed at middle-class first-time homebuyers, designed to lower their monthly mortgage payments without increasing the amount they need to save for a down payment. 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.

But there’s a catch.

The point of the First Time Home Buyer Incentive 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.

How do you qualify?

The First Time Home Buyer Incentive is aimed at helping middle-class homebuyers 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.

Will the First Time Home Buyer Incentive really help?

Critics have questioned the value of the First Time Home Buyer Incentive, arguing that it will do little to help homebuyers in Canada’s priciest housing markets – those people who need the incentive the most. The incentive was originally capped at $480,000, but Trudeau made an election promise to increase the threshold in Toronto, Vancouver and Victoria to $789,000. According to the RE/MAX Housing Affordability Report, this is where home prices in these cities sat in 2019, and where they’re expected to go in 2020:

$883,520 (2019)
$933,691 (estimated in 2020)

$1,195,923 (2019)
$1,267,678 (estimated in 2020)

$717,100 (2019)
$738,613 (estimated in 2020)

Furthermore, media is reporting 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 Housing Affordability Report reveals that homebuyers are employing some creative measures to assist with their purchase, including co-ownership, multiple families residing in a traditionally single-family home, and financial assistance from parents.

What would you do to get your piece of the property pie?