My Mortgage Blog

The long awaited First-Time Home Buyer Incentive finally rolled out last month by the Government of Canada. Is this going to be a game changer for the typical first-time home buyer? Well, see for yourself!

How does it work?

The goal of the incentive is to enable 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

Who Qualifies?

At least one borrower must be a first-time homebuyer. So who is considered a first-time home buyer? You are considered a first-time homebuyer if you meet one of following qualifications:

  • You have never purchased a home before
  • You’ve recently experienced a breakdown of a marriage or common-law partnership
  • In the last 4 years, you did not occupy a home that you or you current spouse or common-law partner owned

But that's not all! In addition to being a first-time home buyer, you need to meet the following requirements:

  • You need to have the minimum down payment to be eligible
  • The maximum down payment, with incentive, cannot be more than 19.99%
  • The property must be owner occupied
  • Your maximum qualifying household income is no more than $120,000
  • Your total borrowing is limited to four times the qualifying income. Here is a calculation:
    • (First Mortgage + Incentive) / Total Qualifying Income
      • Scenario A (5% incentive): ($360000 + $40,000) / $100,000 = 4.0 ELIGABLE
      • Scenario B (10% incentive): ($360,000 + $80,000) / $100,000 = 4.4  NOT ELIGABLE

What's the upside for buyers?

  • Increased cash flow for borrower – you are not incurring or paying back the money obtained through the program
  • If the property is turned into a rental at some point, it will not trigger repayment of the incentive
  • You can switch lenders without penalty – there may be an additional cost if is a collateral charge though because the program will have to postpone to allow new lender to be in first place
  • You can refinance, but the combination of both charges (first and second mortgage) cannot exceed 80% loan to value
  • You can voluntarily repay the incentive at any time, without penalty

What's the downside for buyers?

  • Government owns the equivalent percentage of your property (ie. 5% contribution = 5% ownership)
  • Extra legal costs to register two mortgages
  • Not portable – so while the mortgage might be portable, you’d have to repay the “incentive” if you sell and move
  • Appraisal costs exist when you decide to repay – so they can capitalize on their investment
  • Mortgage is not assumable – not that anyone would/should do that these days anyway
  • Program needs to approve “value” at time of sale - I think this is to prevent undervalued private sales
  • Must repay the incentive if you sell or at 25 years
  • Borrowers typically qualify for a higher purchase price on their own, than they do with the incentive
  • There is no incentive for the homeowner to upgrade the home because the government will reap a portion of the benefit, but not contribute to the cost of the improvements

For more details on the program visit the National Housing Strategy website.

As mentioned, this program is not for everyone. Make sure you know what you're getting into .