June 19, 2019

The Government of Canada has just released additional details about the first-time homebuyers’ incentive

How does the incentive work?

It’s called a “shared equity mortgage”, delivered through the Government of Canada.

The government advances an interest-free loan of up to 5% of the purchase price of an existing home, and up to 10% of the cost of a new home for first-time homebuyers only. This lets first time buyers take out a smaller mortgage, meaning lower monthly payments.

As the borrower, you must have 5% saved for a down payment (for the first $500,000 in lending value and 10% saved for lending value above $600,000) in order to be eligible. You must also repay the loan within 25 years, or when the property is sold.

Your down payment can come from savings, withdrawal from your RRSP or a financial gift from a relative – certain conditions may apply.

Who can apply?

• Canadian citizens, permanent residents, and non-permanent residents who are legally authorized to work in Canada (subject to qualifying income requirements set out by lenders and mortgage loan insurers)
• At least one borrower must be a first-time homebuyer


What properties are eligible?

1 to 4 unit residential properties which includes:

• new construction
• re-sale home
• new and re-sale mobile/manufactured homes
• The property must be located in Canada and must be suitable and available for full-time, year-round occupancy.


What are the repayment terms?

You can repay the incentive at any time without a pre-payment penalty, but the deadline for repayment is 25 years or when the property is sold…whichever is sooner.

The repayment amount is based on the property’s fair market value, which is a bit of a “catch”.Here’s what we mean:

You received a 5% incentive toward the home’s purchase price of $200,000 ($10,000). Your home’s value increased to $300,000 over time. At the time of payback, you owe the government 5% of $300,000 ($15,000) which is the fair market value of your home at repayment time. The government has “shared” in your home’s equity to the tune of $5,000.

Note: If the property value decreases over time, you are still responsible for repaying the shared equity amount based on the property’s current value at repayment time.


What are the other program requirements?

• You must have a household income of less than $120,000. This means your income, and your partner/spouse/co-applicant’s combined income must fall under the threshold.

• The incentive is capped at 4 times the household’s annual income or up to $480,000.

 

How do I know if the incentive is for me?

• Part of your consideration should be an assessment of your cash flow situation today
• If lowering your monthly mortgage payments means you’ll live more comfortably while you’re just ramping up your earning potential, then perhaps the incentive is for you
• It may also be for you if you’ve worked hard to save up your 5% down payment, but waiting to save up another 5-10% means you’ll miss out on great interest rates now, and an opportunity to get into the market at the right time
• On the other hand, if you can manage without the incentive, you’ll reap more upside as your home appreciates over time, and nobody will have a stake in your home’s future equity. Plus, you won’t have a lingering liability to pay off 25 years down the road.
• These are some of the factors you’ll want to weigh, and we’re always happy to advise


When is the incentive available?

September 2nd, 2019. The government has allocated $1.25 billion over three years for the incentive. Funds each year are available on a first-come, first-served basis.If you want to know some of the finer-print details of the incentive, we’re happy to help or you can check out CMHC’s info page here:

https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive.cfm

 

You Dream It. We Finance It.