The federal government’s new incentive
aimed at improving affordability for first-time homebuyers is about to
launch on Sept. 2.
Ottawa has earmarked $1.25 billion over three years for the
First-Time Home Buyer Incentive (FTHBI), which is designed to lower new
homeowners’ monthly mortgage payments without boosting their down
payment costs.
While this may seem like good news for prospective homebuyers, the
incentive has come under intense scrutiny since it was announced in
March, with some arguing it won’t help those looking to live in the
country’s most expensive markets.
So before you apply, here’s everything you need to know about the incentive.
1. It’s a shared-equity program
Run by the country’ federal housing agency, the FTHBI is
a shared-equity mortgage program, meaning the government shares in the
gains and losses of your home’s value as it fluctuates over time.
Through the incentive, Canada Mortgage Housing Corp. (CMHC) will offer
10 per cent toward the down payment for a new home, and five per cent
for resale homes, interest-free.
2. Not all first-time buyers will qualify
First-time homebuyers with a combined household income of $120,000,
and the minimum five-per-cent down payment requirement, can apply.
However, the price of the mortgage plus the incentive amount cannot
exceed more than four times your household income.
“Thanks to the price limitation, the program is far less useful in
high-demand markets like Toronto and Vancouver,” Rob McLister, founder
of mortgage rate comparison website RateSpy.com, told BNN Bloomberg in
an email.
Theoretically, the maximum purchase price of a home under this plan would be $565,000, McLister noted.
“Most first-timer buyers will qualify for far less under this program.”
The CMHC notes the program is intended to help first-time buyers
purchase a home they intend to live in, and therefore investment
properties do not qualify.
3. It’s not feasible in every market
While many new buyers across the country can take advantage of the
program, buyers in some markets may find it challenging to find a home
selling for a price that qualifies for the program, according to a new
study from Zoocasa.
In the report released Tuesday, the real estate site found that after
analyzing average home prices from July 2019 in 25 markets across the
country, buyers with the maximum qualifying income and the required
five-per-cent down payment would qualify in 19 of those cities.
“These include markets in Eastern Canada, Quebec, the Prairies, as well as smaller urban centres in Ontario,” the report said.
“Not surprisingly, the six markets where the average home buyer would
not qualify for the FTHBI include homes for sale in Toronto and several
markets in its proximity in the Greater Golden Horseshoe such as
Hamilton-Burlington and Kitchener-Waterloo, as well as in Greater
Vancouver and neighbouring Victoria and Fraser Valley.”
Zoocasa also noted that a home buyer's ability to use the incentive
in each city may range based on their income, size of their down
payment, and the price of the home they want to buy.
4. You have to pay it back
Borrowers must pay the CMHC back after 25 years or once the home
sells – whichever happens first. You can also pay back the loan early
without penalty. The amount borrowers owe may increase or decrease
depending on how the value your home changes over time.
“If the home’s assessed value rises, the loan repayment will increase
by the same per cent. However, the same will occur if the home has lost
value by the time it is sold or the mortgage matures," Zoocasa
explained.
While the loss-sharing component of the program may seem appealing, it is “largely an illusion,” according to McLister.
“For buyers with little equity, selling after a big price correction
and covering all your costs such as realtor fees, paying out the
mortgage, and covering closing costs, is difficult. It's therefore less
likely the government will ever actually absorb part of your losses if
prices dive,” he said.
5. It can save you money on more than just your mortgage payments
The
government estimates
the program could save buyers as much as $286 per month, or more
than $3,430 per year, in mortgage payments on a $500,000 house.
And McLister said depending on when you sell the home, can save even further.
“People who may sell or move before their five-year mortgage term is up will likely save money with the FTHBI, McLister said.
“That's because the interest and default insurance premium savings will likely outweigh the equity give-up.”
However, first-time buyers looking to purchase the most amount of
house they can afford may want to reconsider using the incentive, added
McLister.
“Many FTHBI users can qualify for almost 10 per cent more home – sometimes more – by not using the FTHBI.”
6. Level of interest in the program is unknown
The incentive is expected to help 100,000 families purchase their
first home over the next three years, according to government targets.
But the expected uptake is unknown.
“There’s a lot of buzz, but we won’t know how much actual interest
there is in this until the shoe actually drops,” Royal LePage CEO Phil
Soper said in a recent television interview with BNN Bloomberg.
“The industry is watching.”
