As Canadians continue to struggle with high housing prices, the federal government has stepped in to help carry the weight of those hefty mortgage payments with the First Time Home Buyer Incentive. Trudeau has earmarked $1.25 billion in funding to the program over the next three years.
The First Time Home Buyer Incentive took effect on Sept. 2, 2019, but confusion continues to swirl. Is this a loan? With no interest or regular payments? And no definitive dollar amount to be repaid? Here’s some insight.
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. To that point, new newly elected Liberal government has pledged to expand the program to homes priced up to $789,000 in Toronto, Vancouver and Victoria. The average selling price of a home in Toronto was $792,611 in August 2019, and in Metro Vancouver it was $993,300. (source: CREA)
About Lydia McNutt
Lydia McNutt is an award-winning writer and editor, who’s interest in real estate, creative flair and love of the written word have brought her to RE/MAX. As Manager of Public Relations and Content at RE/MAX, Lydia is responsible for the creation and curation of content that informs homebuyers and sellers, and empowers them on their journey. Lydia executes on RE/MAX’s public relations, communications and social media strategies, which includes developing reports, featured content and the consumer-facing blog at remax.ca. Lydia has been published nationally, on topics ranging from real estate, decor and design, to finance, business, technology, entertainment and lifestyle. When she’s not head-down at her writing desk, Lydia is blissfully “momming it up” in Oakville, Ontario, where she lives with her husband, two kids and their chocolate lab, Betty. Email Lydia at firstname.lastname@example.org.