The Learning Centre:
Understanding the First-Time Home Buyer Incentive
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Buying a home is probably the biggest purchase you’ll ever make. But there’s good news: the government wants to help. That’s why Canada Mortgage and Housing Corporation (CMHC) launched the First-Time Home Buyer Incentive (FTHBI) in September, 2019. Eligible home buyers will receive up to 10% more money toward their home purchase, in exchange for a corresponding share in the equity of their new home. The incentive is a second-ranking mortgage, which is registered immediately following the first insured mortgage.
Is it for you? Here are the questions home buyers are asking about the program:
What’s the benefit of the FTHBI?
Adding the government’s money to your own down payment, may reduce the size of your mortgage payments.
Am I eligible?
The FTHBI is open to Canadian citizens, permanent residents and non-permanent residents who are legally entitled to work in Canada. The borrowers’ qualified annual income (including employment, investment income and rental income) cannot exceed $120,000, and mortgage + incentives cannot exceed 4 times their income. (Note: in Toronto, Vancouver and Victoria, the government is proposing eligibility be income up to $150,000, and mortgage + incentives up to five times their income.)
One of the borrowers must be a ‘first-time’ home buyer: ie., you cannot have lived in a home that you or your current partner owned in the past four years.
What kind of home can I buy, and how much will the government contribute?
The FTHBI can be used for a newly constructed or resale home in Canada (including a mobile or manufactured home, as long as it is situated on owned or leased land.)
The amount is 5% for re-sale and mobile/manufactured homes. For newly constructed homes, the incentive is generally 10% but could be reduced to 5% in some circumstances.
How much help can I get for my down payment?
You must qualify for an insured mortgage ie., your down payment must be less than 20% of the property value.
- If the down payment you’re contributing is up to 14.99% you can get an incentive amount of 5%.
- If the down payment you’re contributing is up to 9.99% you can get an incentive amount of 10%.
This means that though you may be eligible for a 10% incentive on new construction, if your down payment is 10% or more then you will be limited to a 5% incentive. The CMHC’s requirements regarding insurance can seem complicated, but a lending specialist such as the professionals at Educators Financial Group can answer all your questions.
When do I get the incentive?
Once your application is approved, you’ll receive the incentive for a re-sale home in about 6 months, or 18 months for new construction.
The incentive may be advanced at time of closing of the insured first mortgage. The FTHBI contribution is then registered as a 25-year term second mortgage with no interest and no regular principal payments.
When do I have to pay the incentive back?
You can pay the incentive back in full at any time, without any pre-payment penalty. Otherwise, it’s due at the end of the 25-year term, or earlier if you sell the property.
How much do I pay back?
The repayment is based on the incentive percentage, multiplied by the property’s ‘fair market value’ at time of sale, or time of payout.
The fair market value will normally be the gross purchase price in the Purchase & Sale Agreement, without reduction for real estate commissions or other selling costs.
Are there other considerations?
Getting the FTHBI may mean additional costs, such as legal and registration fees for closing two mortgages, and potential appraisal fees.
You should weigh the benefits of lower monthly mortgage payments against the cost of paying back a portion of the future appreciation in the value of your property. If interest rates rise, your savings in monthly mortgage from taking advantage of the FHBI will increase due to the lower mortgage payments. If the property value rises drastically, that will increase the amount you will have to pay back to the CMHC.
How can I find out more about the FTHBI?
Talk to an Educators lending specialist today, by calling 1.800.263.9541
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The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.