Here's what you need to know about the First-time Home Buyer Incentive

Posted on Sep 03, 2019 in Real Estate



The government's First-Time Home Buyer Incentive (FTHBI) comes into effect today.

FTHBI is a program which has one goal, and it is to make it an easier task for youngsters to buy their first home, by lowering new buyer's monthly mortgage payments.

According to the program, which was introduced by the Liberals in their 2019 budget, the federal government will absorb five per cent of monthly mortgage payments on existing homes and 10 per cent on new builds.

But there are a few notable conditions to watch out for, which have come under fire since the plan's March announcement. Ottawa-based mortgage broker Frank Napolitano spoke with CTVNews.ca to help lay it all out.

The first main rule if you want to be considered eligible is that applicants must not have owned a house in the past four years, however exceptions will be made for those who are in a "breakdown of marriage or common-law partnership."

Secondly, a homebuyers' combined annual household income must be lower than $120,000 before taxes and deductions. As Napolitano says, that qualifier strikes out most residents from Vancouver and the Greater Toronto Area.

"The max income is $120,000 that can be used for this program, therefore to qualify for a mortgage – if you have no debt – it’s typically four, maybe four and a quarter times your annual gross income so there’s not a lot of properties in the $500,000 range or less. Maximum property value under this program would be $560,000."

To that end, the FTHBI is more likely to benefit residents in less crowded markets, like smaller urban centres in Ontario, Quebec, the Prairies, or out east where you can still find a home below the price cap. Do not forget how it is basically impossible to purchase a home in Vancouver under $560,000 so this would not effect many people that live here.

Additionally, as Napolitano points out, first-time buyers will still have to cough up default insurance under the plan.

"We've had customers call us and say 'we'll put the 10 per cent down and then we’ll buy a new build and the government will give us 10 per cent so we don't have to pay default insurance.' False. Regardless of the down payment, this program only works if you have default insurance."

Default insurance protects financial institutions from default – the premium gets tacked on to your mortgage payments.

There are obvious paybacks for the government. While they provide an interest-free loan, they also secure shared equity in your home as it goes through gains and losses. This means the amount paid back to the government will fluctuate based on how much your home increases or decreases in value.

The loan must also be paid back if you sell your home, however if you are not planning on selling your home you can pay back for the loan in the span of 25 years.

Minister of Families and Social Development Jean-Yves Duclos – Speaks about the first time buyer incentive. "Thanks to mortgage payments that are more affordable, many families will have hundreds of dollars more each month in their pockets – money to spend on things like healthy food, sports activities for their kids, or even save for the future," said Duclos in the statement.

The program is expected to serve about 100,000 Canadian homebuyers. Follow the chart below to determine whether you should.

If you would like to learn more about the first time buyer incentive, or if you are thinking about buying or selling your properties, please contact Matt Gul, who is a top luxury real estate agent situated in West Vancouver, who can help you with all of your needs. To contact Matt Gul please call him at 778.888.8888 or email him at matt@mattgul.com



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