If you’re an aspiring first-time home buyer and live in one of Canada’s three most expensive cities, a new government incentive may be the way forward for you. If you live in Toronto, Vancouver, or Victoria, then the First-Time Home Buyer Incentive (FTHBI) helps ease mortgage rates to make home-owning more accessible to all.
The government’s Fall Economic Statement included changes that will come into effect in the Spring of 2021, helping qualified buyers to reduce their monthly mortgage payments, without adding to their financial burdens. The incentive will be helpful to a lot of people in the right situation, but qualifying for it has a few caveats.
Here is everything you need to know about the FTHBI and how to use it for your benefit in your home-owning journey.
What does the incentive offer?
The FTHBI is essentially a shared equity mortgage with the Government of Canada. In order to reduce mortgage rates, it offers three main benefits:
5% or 10% for a first-time buyer’s ownership of a newly constructed home.
5% for a first-time buyer’s ownership for a resale or existing home.
5% for a first-time buyer’s ownership or a new or resale of a mobile/manufactured home.
As the incentive offers a shared mortgage rate benefit, the Canada Mortgage and Housing Corporation (CMHC) partners in sharing the investment of the home with you, the homeowner. As the property appreciates and depreciates in value according to the fluctuation of the market, the CMHC will share in the upside and downside of the property value with you.
The scheme is most valuable to those with outstanding financial payments, as it will help reduce the regular mortgage payments for the new home. You’ll need to pay back the amount within 25 years, during which home-buyers will be able to save up a significant chunk of money due to the reduced mortgage rates. The incentive also stipulates that in the case the property is sold before the 25 year period, the amount must be paid back. The home-buyer may also pay back the amount in full before the payment deadline without facing a prepayment penalty.
Qualifying for the FTHBI
While the incentive is of great value for many home-buyers, unfortunately it does come with some caveats. The CMHC has placed some restrictions on qualifying based on who can use it and what kind of homes can be purchased with it. Here are the four main requirements to qualify for the FTHBI:
First-Time Home Buyers. The name of the incentive says it all: you have to be a first-time home buyer in order to qualify! The incentive defines a first-time home buyer as someone who’s never owned a home (anywhere in the world, not just Canada), nor lived in a house owned by a spouse of a common law partner in the last four years.
Household Income. Another stipulation the CMHC has put in place is that the household income of the interested party must be less than $120,000 to qualify. This includes the income of you and anyone else who chooses to co-own the home with you. The annual average Canadian income is reported to be around $52,000, which means that a lot of Canadians will be able to qualify for the FTHBI in the Household Income clause.
Minimum Down Payment. The down payment must be paid fully in cash, after which the reduced mortgage rates start applying, meaning that the incentive doesn’t kick in until after the down payment is paid off. For properties worth $500,000 or less, the minimum down payment will be 5% of the total amount. For homes costing between $500,000 and $1 million, the down payment is 5% of the first $500,000 and then 10% of the remaining amount.
Maximum Borrowed. The incentive also stipulates that the maximum amount to be borrowed is four times your qualifying income. If you earn exactly $120,000 a year (which is the qualifying maximum), that means the maximum amount you can borrow to be eligible for the incentive is $480,000. This is a pretty restrictive requirement, as it significantly limits the range of properties available for reduced mortgage rates. As the FTHBI is available only in Canada’s three most expensive cities, finding an eligible mortgage within this amount can be tricky for some. This is because the first-time buyer will likely earn close to the national average and then have to buy a moderately priced home compared to their earnings as well.
Is the FTHBI right for you?
This is a tricky question because it depends on so many factors such as where you live, how much you earn, and how much financial burden you wish to undertake. There will be no one-size-fits-all answer, but checking if you’re eligible is a good place to start. Crunching some numbers to check your mortgage affordability is helpful too, so be sure to check mortgage rates with the incentive as well as without. However, it’s always best to speak to a mortgage broker in your area who can help evaluate the right move for you.
For example, if you’re looking to buy a home that’s more expensive than the maximum allowed in the incentive, then it may not be right for you. At the same time, remember that the housing market is constantly fluctuating, and it is impossible to determine future property values.
Also, researching other options for someone in your situation is great to understand the housing market where you live. A joint mortgage may be a solution for some, while a refinancing may be the right move for others.
To book an appointment or for more mortgage advice, call Canadalend at 1-866-422-6536 or contact us here.