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Everything you need to know about the First-Time Home Buyer incentive for Canadians.
Homeownership is a goal that many Canadians would like to reach. It signifies a milestone in many people’s lives and is a great way to acquire assets, achieve personal financial goals as well as invest. While this is so, homeownership presents a myriad of challenges that may make it difficult for many to reach this milestone.
This incentive helps middle-class first-time buyers through a shared-equity mortgage, which entails:
The FTHBI was introduced in 2019 under the shared-equity mortgage model and it will possibly run until 2022 unless it is renewed. A shared-equity mortgage is a financial arrangement that states that both the lender and the borrower have a share in the profits made from a property, either through the selling of the property or through loan repayments. In other words, the Canadian government has a share in the property value of buyers who apply for the FTHBI, and buyers are expected to repay the incentive after selling the property, or after 25 years through a lump sum repayment.
There are pros and cons to acquiring the First-Time Home Buyer Incentive. The first obvious advantage is that by receiving the incentive, you don’t have to save up as much for a down payment on a home, making it easier for those who were otherwise unable to access the property market to become homeowners. This in effect can also assist with reducing the amount paid towards mortgage payments on a monthly basis, helping you build wealth.
People who qualify for the FTHBI are Canadian citizens or residents with work permits that earn below $120,000 per annum, and people who haven’t lived in a home they own or a home that is owned by their spouse or common-law partner in the last 4 years. People who are recently divorced from their spouse or common-law partner may also be eligible. Furthermore, one would have to put down a minimum down payment of 5% for the first $500,000 of the selling price.
If you qualify for the FTHBI, it is recommended that you weigh your options before applying. It may appear beneficial, but it also depends on the real estate market in the area you’d like to live in. In high-end property markets, the incentive could restrict you from purchasing the property you really want. Added to that, you’ll need to factor in paying back the loan in 25 years or when you move, which will affect your finances and property decisions. Getting a low mortgage rate and paying back the incentive prior to the 25-year mark and prior to your home’s value increasing is key in reaping benefits should you apply for the FTHBI.
A significant challenge presented by homeownership is the affordability of housing in Canada. Due to the rising costs of housing and living, many Canadians are unable to afford homeownership with their modest incomes. The Canada Mortgage and Housing Corporation (CMHC) has aimed to help alleviate the issues presented by unaffordability through the First-Time Home Buyer Incentive (FTHBI), which will provide $1,25 billion to encourage first-time buyers to purchase property.
What the FTHBI entails
The pros and cons of applying for the FTHBI
The cons of a shared-equity mortgage are that buyers are expected to repay the incentive in a single lump sum based on the home’s current market value. For example, if a buyer receives a 5% incentive, they will have to repay the 5% back and most likely, the property value will have increased over time, meaning the money paid back will be more than the value of the initial incentive. The opposite may happen — the value of the property may decrease, resulting in the repayment decreasing. Although interest-free, the value of the loan will fluctuate depending on the value of the property.
Who qualifies for the FTHBI?
Factors to consider if you apply for the FTHBI