The First Time-Home Buyer Incentive (FTHBI) officially launches on Monday September 2ndacross Canada, aimed at boosting the down payment of first-time home buyers and lowering their mortgage payments anywhere between $150 to $300 per month. Let’s hope this program gives buyers the boost they need keep the market moving.
Why did the government of Canada introduce this program?
Following a list of government changes to the mortgage rules, it has been a challenge for first time home buyers to qualify for a mortgage. Specifically, the new “stress test” rules introduced in January of 2018 now require buyers to qualify using an interest rate of 2% higher that the negotiated rate. These changes along with rising property prices, have pushed first-time buyers to the curb. Many are priced out of the market.
Here is what the government offers if you are an eligible first-time home buyer:
The incentive will provide an interest free loan of an extra 5% towards the down payment for a resale property and up to 10% down payment towards a new construction property.
There are of course rules about who qualifies as a first-time buyer, the maximum purchase price and how the loan is repaid back to the government.
Do you qualify as a first-time buyer?
To be considered a first-time home buyer you or a spouse/common law partner need to have not owned a property within the past 4 years or exceptionally if you went through a divorce or separation. The combined household income of the buyers cannot exceed $120 000 and the maximum loan amount cannot exceed 4 times the family income. You also need to have the minimum 5% down payment.
What can I purchase with the First-time Home Buyer Incentive?
The maximum purchase price is around the $500 000 price point and the home needs to be lived in and under 5 doors, meaning you cannot buy an investment property. In Montreal, property prices are still well below the rest of Canada and a buyer can find a condo or even a single home under $500 000.
Here is an example provided by the Government of Canada website
How does the “interest free” loan work?
The loan is registered as a second mortgage on the property you purchase, and no interest is charged. You can pay back the loan at anytime without penalty, but when your first mortgage comes due after the 25 years or you sell the property, the loan needs to be repaid.
It is considered a “shared equity” loan, so the repayment amount is calculated on the fair market value of the property at the time of repayment, which can increase or decrease. Say you received a 10% incentive for a property you purchased for $200 000. The incentive received was $20 000. The property is sold at $300 000 many years later. You are required to pay 10% of the market sale price which is $30 000. The repayment may fluctuate up or down, depending on the market value of the home at the time of a sale.
Will this incentive put more money in the pockets of First-Time home buyers?
As a first-time home buyer, if a 5% extra down payment will allow you to qualify, where you otherwise would not, then this may be for you. If an extra 10% down payment allows you to afford that new construction town house that is perfect for your new family, then go for it! Keep in mind that you do not control market values and they fluctuate. Keep in mind that the first mortgage may be changed or altered but that would require extra fees, if you would want to refinance for example. This also may work if it a short-term purchase and you know you are selling within 2-3 years. There won’t be a dramatic fluctuation in the market value. As usual, the best thing to do is meet with a realtor and a mortgage broker who can look at your situation and counsel you accordingly.
Helen Akrivos is a Montreal real estate expert who is passionate about educating and inspiring everyone to succeed in real estate! She holds a Chartered real estate broker license and is President of North East Realties agency in Montreal. As a lecturer in the Residential Real Estate Program at College Lasalle, Co-Host of “The Real Estate Show” on CJAD AM800 radio and contributor to the MTL Times newspaper, Helen shares her stories of real estate success to help as many people as possible! E-mail your comments to firstname.lastname@example.org