Barring any unforeseen circumstances the program will launch on September 2, 2019.
The first closing will take effect on November 1, 2019.
The First-Time Home Buyer Incentive (the Incentive) helps qualified first-time
homebuyers reduce their monthly mortgage carrying costs without adding to their financial burdens.
You need to have the minimum down payment to be eligible. You can then
apply for a 5% or 10% shared equity mortgage with the Government of Canada.
Your maximum qualifying income is no more than $120,000 and
your total borrowing is limited to 4 times the qualifying income.
A shared equity mortgage is where the government shares in the upside
and downside of the property value.
How does it work?
The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.
Through the First-Time Home Buyer Incentive, the Government of Canada will offer:
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
How do I know how much I have to pay back?
You can repay the Incentive at any time without a pre-payment penalty. You have to repay the Incentive after 25 years or if the property is sold. 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.
NOTE: If your property value goes down, you are still responsible for repaying the shared equity mortgage based on the current home value at time of repayment.
The total amount of funding will be $1.25 billion over 3 years.
The program is expected to be ready to receive Incentive applications starting September 2, 2019. If approved for the Incentive, the purchase transaction must close on or after November 1, 2019. Purchase transactions already closed prior to September 2, 2019 cannot be considered under the program. More details on how to apply will be shared once it is available.
Eligibility & Requirements
Let’s look at a specific situation
Anita wants to buy a new home for $400,000.
Under the First-Time Home Buyer Incentive, Anita can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program. This is on top of the minimum required down payment of $20,000 (5% of the purchase price) from her savings.
This lowers the amount she needs to borrow and reduces her monthly expenses.
As a result, Anita’s mortgage is $228 less a month or $2,736 a year.
Years later, Anita has sold her first home for $420,000. At this time, she would now have to repay the original incentive she received as a percentage of her home’s current value. This would result in Anita repaying 10%, or $42,000 at the time of selling her house.
Here’s another situation
John has an annual qualifying income of $83,125.
To be eligible for Canada’s First-Time Home Buyer Incentive, he can purchase a home up to $350,000. John still has the required minimum down payment of 5% of the purchase price, $17,500 from his savings. He can receive $35,000 in a shared equity mortage — 10% of a newly constructed home.
This would reduce John’s mortgage payments by $200 a month or $2,401 a year.
Years later, John has decided to sell his home, but it is now worth $320,000. When he sells his house at the price of $320,000, John will have to repay the original incentive he received as a percentage of his home’s current value. This would result in John repaying 10%, or $32,000 at the time of selling his house.
* These examples are for illustrative purposes only. Anita/John will need to repay the incentive at 10% of the fair market value when they sell the property or after 25 years, whichever is earliest. All property values and home prices used in this example are not an indicator on how property values are forecasted.