First-Time Home Buyer Incentive | Canada

Let’s talk real-estate.
Have you heard of the First-Time Home Buyer Incentive?

As a first-time home buyer I got really interested in First-Time Home Buyer Incentive provided by the government of Canada. It was released just over a month ago (September 2nd). Government of Canada plan to spend $1.25 billion over three years for the First-Time Home Buyer Incentive (FTHBI). They designed it to lower new homeowners’ monthly mortgage payments without boosting their down payment costs. Okay… Continue.

What exactly are you being offered?

  • 5% for a first-time buyer’s purchase of a re-sale home 
  • 5% or 10% for a first-time buyer’s purchase of a new construction
  • It is not interest bearing and does not require ongoing repayments.   

It all sounds too good to be true. How much and when do I need to pay back?

You can repay the Incentive at any time in full without a pre-payment penalty. You have to repay the Incentive after 25 years or if the property is sold, whichever happens first. The repayment of the Incentive is based on the property’s fair market value. 

  • You receive a 5% incentive of the home’s purchase price of $200,000, or $10,000.
    If your home value increases to $300,000 your payback would be 5% of the current value or $15,000. 
  • You receive a 10% incentive of the home’s purchase price of $200,000, or $20,000 and your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000.

A-HA! Now I see where is the catch. Easy money for the government. Here are the few examples to demonstrate how this is beneficial for the government:

Government does not like to lose money and there are some smart people working to make sure it doesn’t happen. Consider that fact and examples above I make the following assumptions:

  • Government anticipates the growth of real estate market over the next several years. It is safe to buy.
  • Government tries to stimulate the new affordable housing development. It is profitable to build. This is a great time to be in construction business.
  • Property prices on the outskirts of GTA real-estate markets are expected to grow. Here is why:
    Total borrowing is limited to 4 times the qualifying income ($120,000 annually x 4 = $480,000). The combined mortgage and Incentive amount cannot exceed four times the total qualifying income.  The amount for the mortgage loan insurance premium is excluded from this calculation. 
    It is almost impossible to find a decent property in Toronto GTA for $480K. You got to expand the scope of search and look further. People will start buying houses in the areas like Barrie, Hamilton, Niagara, Oshawa, Windsor, Brampton etc… Because of increased demand I expect significant raise in house prices in those areas.

For a personalized example, I used the First-Time Home Buyer calculator to see, if qualified, how much money can I save using this incentive. Let’s say you make CAD$100,000 annually and want to buy a house for CAD$440,000 with $40,000 down payment. FTHBI will save you about $120 on monthly payments and $1440 /year respectively.