The First-Time Home Buyer Incentive launched on September 2, 2019
It’s actually happening. Canada’s First-Time Home Buyer Incentive (FTHBI) comes into effect today and it will make it a whole lot easier for young people to buy homes. Applications are officially being accepted as of today and will close on Nov. 1, 2019.
The program is expected to serve about 100,000 Canadian homebuyers. The total amount of funding will be $1.25 billion over 3 years.
As this will lower the mortgage payments, many families will save hundreds of dollars more each month means more money to spend on healthy food, sports activities, kids, or even save for the future and improve the overall quality of life.
There are a few qualifiers to apply for this incentive:
- Applicants must not have owned a house in the last four years – exceptions will be made for those in a "breakdown of marriage or common-law partnership
- You need to have the minimum down payment to be eligible.
- Your maximum qualifying family income should be no more than $120,000(before taxes and deductions)
- Your total borrowing is limited to 4 times the qualifying income.
If you meet these criteria, you can then apply for a 5% or 10% shared equity mortgage with the Government of Canada. A shared equity mortgage is where the government shares in the upside and downside of the property value.
How does it work?
The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.
Through the First-Time Home Buyer Incentive, the Government of Canada will offer:
- 5% for a first-time buyer’s purchase of a re-sale home
- 5% or 10% for a first-time buyer’s purchase of a new construction
How do I know how much I have to pay back?
The loan must also be paid back under three circumstances, whichever happens earlier:
- If you re-finance your home;
- if you sell your home;
- or at the end of 25 years.
You receive a 5% incentive of the home’s purchase price of $200,000, or $10,000.
If your home value increases to $300,000 your payback would be 5% of the current value or $15,000.
You receive a 10% incentive of the home’s purchase price of $200,000, or $20,000 and your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000.
NOTE: If your property value goes down, you are still responsible for repaying the shared equity mortgage based on the current home value at time of repayment.
The program is expected to be ready to receive Incentive applications starting September 2, 2019. If approved for the Incentive, the purchase transaction must close on or after November 1, 2019.
Here is an example:-
Smith wants to buy a new home for $400,000.
Under the First-Time Home Buyer Incentive, Smith can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) from the Government of Canada. This lowers the amount he needs to borrow and reduces his monthly expenses.
As a result, Smith’s mortgage is $228 less a month or $2,736 a year.
Proposed Increases to the CMHC First-Time Home Buyer Incentive
In their 2021 budget, the Liberals have proposed to increase the maximum home price for the CMHC First-Time Home Buyer Incentive from about $505,000 to $722,000 for buyers in Toronto, Vancouver, and Victoria. Their proposals include an increase in the income eligibility threshold from $120K to $150K and the home price limit from 4 times household income to 4.5 times. These changes come as Toronto's housing market and Vancouver real estate climb to new all-time highs.
These changes are still preliminary and have not been approved by Parliament. We will update our calculator once the budget has been finalized.
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