The First-Time Home Buyer Incentive launches September 2, 2019*
New Details Emerge on Canada's First-Time Homebuyer Incentive Program
Posted On: Monday, June 24, 2019
The First-Time Home Buyer Incentive (FTHBI), announced in the federal government’s budget earlier this year, will come into effect on Sept. 2, 2019, with the first closing taking effect on Nov. 1, 2019.
The First-Time Home Buyer Incentive helps qualified first-time homebuyers take out a smaller mortgage and keep their monthly payments lower. Buyers would see the government pick up part of the costs of their mortgages to lower their monthly payments, with the amount of help determined by their incomes and whether they’re buying an existing or newly built home.
How does it work?
To be eligible, your maximum qualifying income must be no more than $120,000 and the total borrowing is limited to four times your household income.
For existing homes, the incentive will be advancing an interest-free loan of up to 5 percent of the purchase price of an existing home, while new home builds will have the option of 5 or 10 percent.
*Image from Canada Mortgage and Housing Corporation
There are no ongoing repayments required, the incentive is not interest bearing, and the borrower can repay the incentive at any time without a pre-payment penalty. The buyer must repay the incentive after 25 years, or if the property is sold, whichever comes first.
What is new is the fact that the incentive is based on the property’s fair market value. What this means is that if the house price goes up, the government will get a percentage of the price increase. And if the house price decreases, the government will shoulder a percentage of the loss.
If you receive a 5% incentive of a home’s purchase price of $300,000, ($15,000) and your home value increases to $350,000, then your payback would be 5% of the current value or $17,500.
If you receive a 10% incentive of a home’s purchase price of $300,000 ($30,000), and the value of your home decreases to $250,000, then your repayment value will be 10% of the current value ($25,000).
The government has allocated $1.25 billion over three years for the First-Time Home Buyer Incentive and anticipates 100,000 qualified individuals will take advantage of the program when it is introduced in the fall of this year.