The First-Time Home Buyer Incentive (FTHBI) allows first-time homebuyers who have the minimum 5% down payment, to apply to for a shared equity loan from the government.
The interest free loan is 5% of the value of a resale home, and 5% or 10% for homes purchased straight from developers.
*An amount in between 5% and 10% is not allowed.
However, this program does NOT increase affordability, as some people expected. The main benefit of this program is to allow Canadians to save on monthly mortgage payments.
What’s Cool About This Program
- Interest-free loan
- Monthly payments decrease
- No pre-payment penalty
As stated above, this program doesn’t increase affordability. This is due to the requirement that the mortgage + incentive must be less than 4 x gross income (so the maximum purchase price is about $505k, depending on income and down payment). This means that the real benefit here is to help with monthly payments.
Another cool thing is that the extra $195 per month could be used to A) put towards the mortgage for a faster payoff, B) to RRSPs to decrease taxable earnings, C) to RESPs (everyone should invest in RESPs if they have kids), and D) TFSAs.
Purchase (Brand New Home)
You can save quite a bit of money per month if you have 10% of the property provided to you, on an interest free basis. Again this example is for the purchase of a brand new home. On any resale homes, the max that the gov’t will contribute is 5% of the purchase price.
- Must be a first-time home buyer as recognized by the CRA’s RSP Home Buyers’ Plan
- Must qualify for the mortgage and have mortgage insurance (your down payment plus the FTHBI cannot exceed 20% of the value of the property).
- Total (all applicants) qualifying gross income cannot be over $120,000
- Mortgage cannot be over 4 times gross income.
- Repayment of the loan is when the property is sold, or 25 years, whichever comes first. Refinancing of the first mortgage will not trigger a repayment. Or, it can be paid off at any time.
- When paying off the FTHBI, the repayment is based on the property’s fair market value (sale price) or an independent appraisal.
- The government will participate in any increase of the property’s value. For example, if your loan is 5% at the beginning then you would have to pay 5% of the new sale price. The government will also participate in any decrease in value as well.
- There is an extra solicitor fee (~$300) for arranging this 2nd mortgage.
- Given current real estate prices in the Metro Vancouver area, this won’t help many future homeowners as the cap in the purchase price of a home is about $505k (depending on your income and down payment)
How To Apply
- Talk to you favourite Mortgage Broker! We’re here to help.
- The application is fairly simple:
- Go to: http://placetocallhome.ca to apply and to get up to date information on the program
- Fill out the Consent & Privacy form on the website and hand it to your Mortgage Broker. Simple!