First-Time Home Buyer Incentive
Are you looking to purchase your first home, but are discouraged by exuberant homes prices? You’re not alone. More and more Canadians are struggling to purchase their first home due to our overly expensive and competitive real estate market. To help solve this issue, the Liberal Government launched their First-Time Home Buyer Incentive Program on September 3rd, 2019. Structured as a shared equity mortgage, this program aims to make real estate more affordable by reducing homeowners’ monthly mortgage payments.
There are approximately 100,000 Canadians who qualify for this program. If you are one of these individuals, there are a few things you should know about how the incentive works. The Canadian Government will loan qualifying buyers 10 per cent of the purchase price of a new home or five per cent for a resale home. This loan will act as a secondary mortgage on your home. However, you don’t have to make monthly payments or pay interest. Instead, you will have to repay the loan when you move, or in 25 years, whatever comes first.
Here’s the catch. The amount you repay is based upon the fair market value of your home at the time of repayment. What this means is that you will have to repay either five per cent or 10 per cent of your home’s value at the time of repayment. So, if your home has appreciated, you will be on the line for more than you originally borrowed. Alternatively, if your home depreciated in value, you will repay less. These specific repayment terms are what qualifies the incentive as a shared-equity mortgage. There are no early payment fees tied to this incentive, so for those wanting to avoid the potential of paying more than borrowed, there is the option to repay the loan sooner.
Based on the current real estate market in Canada, it is anticipated that the incentive will mostly benefit Canadians in more stable city markets and smaller urban areas. For these Canadians, they can benefit from a maximum savings of $286 on their monthly mortgage fees.
The unique nature of this incentive requires buyers to think carefully about whether this program is right for them. Not only must you consider if the incentive will allow you to purchase a home you desire, but you must also think about the repayment conditions and if these terms will be reasonable for you in 25 years.
Do you qualify?
There are four conditions that a homebuyer must meet to qualify for the incentive. Firstly, as made evident through the name of the program, you must be a first-time homebuyer. There are, however, some exceptions to this condition. If you are divorced, had a breakdown in a common-law partnership, or you or your spouse/common-law partner haven’t owned a home in four years, you may also qualify for the incentive. Secondly, your household income before taxes and deductions must not exceed $120,000. This includes income from your job and any investments you may have.
Thirdly, you must be able to meet the minimum down payment of five per cent for the home you’d like to purchase. The amount you put down for a down payment, however, must not exceed 20 per cent of the home purchase price once the incentive is added. Finally, the amount borrowed must be less than four times your household income. This prevents homebuyers using the incentive to buy a home with a purchase price above $560,000.
Since launching on September 3rd, the First Time Home Buyer Incentive has received mixed reviews. The majority of Canadians are in favour of helping young people purchase their first homes. However, some question the legitimacy of the deal itself. CBC’s Soheil Karkhanechi states that “the liberals first-time homebuyers incentive is a bad deal”, and that the programs ask too much in exchange for saving a couple hundred dollars per month. Others argue that it gives young Canadians the jump they need to achieve their dreams of homeownership. Politics also come into play here. The Liberals have stated that if elected in the upcoming federal elections, the program will be expanded to help those in Toronto & Vancouver, Canada’s two most expensive markets.
Confused about whether the First-Time Home Buyer Incentive is the right option for you? You’re not alone! One of my favourite parts of being a mortgage broker is helping young Canadians achieve their dreams of owning a home.
If you’re been spending time house hunting, but are unsure if you can afford it, give me a call at (705) 333-4338 or get in touch with me here!