In an effort to make home ownership more affordable for first time home buyers, the Federal government has recently introduced the First-Time Home Buyer Incentive (FTHBI) that will officially launch September 2, 2019. Administered by the Canada Mortgage and Housing Corporation (CMHC), this program will aim to reduce new homeowners monthly mortgage carrying costs without increasing their initial down payment. This program has a total of $1.25 billion dollars allocated to it over a span of 3 years.
How Does it Work?
The federal government will pay 5% of the purchase price for an existing home, and up to 10% for the value of a new home in exchange for an equity stake. This incentive is an interest free second mortgage on the title of the property that requires no ongoing payments and has a maximum term of 25 years. You can repay this incentive at any time in full without a pre-payment penalty so long as it is completely paid off after 25 years or when the property is sold (whichever situation occurs first). It is important to note that the incentive is based on the property’s fair market value and you could end up paying slightly more and slightly less than the original value of the incentive.
Example: Bob purchases a house worth $300,000 and he receives a 10% incentive worth $30,000. If the home value increases to $400,000, he would now have to pay back $40,000. On the flip side, the if the home value decreases to $200,000, he would then only have to pay back $20,000.
In order to be eligible to participate in this program, the following must apply:
- You must be a first-time home buyer. This includes situations in which:
- You have never bought a home before
- You went through a divorce/breakdown of a common-law partnership
- In the last 4 years you did not occupy a home that you or your current spouse or common-law partner had ownership of
- You must have a down payment of at least 5% of the total purchase price to a maximum of 20%.
- The household income must be less than $120,000, and the mortgage and incentive amount can’t be more than 4 times the household income
- The mortgage must be eligible for mortgage loan insurance through either Canada Guaranty, CMHC or Genworth.
- Eligible properties include new construction homes, re-sale homes and new/re-sale mobile homes. Types of residential properties include single family homes, semi-detached homes, duplexes, triplexes, fourplexes, townhouses, condominium units.
Cheryl Mills, Mortgage Specialist
RBC Royal Bank
Cell: 403- 809-5684