For the first time in years, Canada’s first-time buyers have a reason to feel optimistic. September 2, 2019, marked the launch of the Canadian Mortgage and Housing Corporation’s all-new First-Time Home Buyers Incentive (FTHBI), a financial incentive designed to help middle-class Canadians buy their first property.
The Perfect Time for the FTHBI
The timing for the FTHBI couldn’t be better. Beyond the First-Time Home Buyer Incentive itself, there are three key real estate factors that actually favour all buyers as we head into 2019, not just first-timers. Fixed mortgage rates remain at an all-time low. Most markets across the country are balanced or even a little soft. And maybe best of all (and as discussed in this recent Fall Trends article) buyers typically don’t buy homes in the lead-up to a federal election, giving first-time buyers some added leverage as markets slow before October 21.
“The First Time Home Buyer Incentive will reduce the monthly mortgage for your first home by up to $286,” says Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister Responsible for Canada Mortgage and Housing Corporation. “This will help up to 100,000 families across Canada to buy their first home.”
How Does the FTHBI Work?
In effect, the FTHBI reduces their monthly mortgage payment without increasing the amount they need to save for the down payment. First-time buyers can finance a portion of their purchase through a form of shared equity mortgage with the Government of Canada. Home buyers will still have to pass the B-20 stress test and have mortgage pre-approval and mortgage approval.
“No doubt, some first-time buyers will benefit, and we’ll have to wait and see just how many families it affects,” says Paul Taylor, President and CEO, Mortgage Professionals Canada, Toronto.
Who Qualifies for the FTHBI
- A combined household income of less than $120,000
- The insured mortgage and incentive cannot be more than four times the participants’ qualified annual household income
- Incentive is 5% on a resale or existing home
- Incentive can be either 5% or 10% on a newly constructed home
- Interest-free incentive
- No payments are due on the incentive until the home is sold or at 25 years
- The incentive can be repaid in full at any time without penalties (repayment must be in a lump sum of the current % valuation of the home.)
- The incentive must be repaid after 25 years, or when the property is sold, whichever comes first
- At 25 years, or resale, the homeowner repays 5 or 10% of the home’s value at that time rather than the amount received from CMHC (if the home lost value, the owner and CMHC share the loss and conversely, both parties benefit if the home increased in value)
For years now, unaffordable, astronomical properties have been getting all of the attention. In reality, those homes co-exist with some reasonably-priced, affordable homes in the very same cities, including Toronto, Montreal and Vancouver. Of course, those homes may be smaller apartments, older homes and/or in less desirable neighbourhoods, but they’re out there and may be perfectly suited to first-time buyers and their families.