Federal First-time Homebuyer Incentive

Posted on 20 June, 2019

In March 2019, the federal government announced a new first-time homebuyers incentive program that is slated to roll out this fall. Earlier this week, they released further details about how the program would work moving forward.

What is the First-time Homebuyer Incentive?
On top of your own down payment, the Government of Canada will contribute an additional amount to go towards the purchase of your property. This decreases your total mortgage loan, which, in turn, decreases your monthly mortgage payments. The amount they will contribute is dependent on the type of purchase you are looking to make:

  • For existing homes, the government will contribute an additional 5 percent towards your down payment
  • For new builds, they will contribute an additional 10 percent.

Your total mortgage loan must be no more than 4 times your annual income, up to a maximum loan amount of $480,000. After factoring in your down payment, this means you would be able to purchase a home with a maximum purchase price between $500,000-$600,000. This incentive is an interest-free loan that acts as a second mortgage on the title of the property. There are no regular monthly payments and the loan can be repaid at any time without penalty, up to a maximum of 25 years.


Example
New build purchase price: $400,000
Minimum down payment: $20,000

Through the shared equity program, you would be eligible to apply for an additional 10 percent of the purchase price, which would equate to an extra $40,000 and bring your total down payment amount to $60,000. This extra down payment would translate to a monthly payment decrease of $228.

Savings: $2736 per year


When does it start?
Eligible homebuyers can apply for a shared equity mortgage with the Government of Canada as of September 2, 2019. The government has allocated $1.25 billion over three years into this shared equity program, which will be distributed on a first-come-first-serve basis.


Who can qualify?
Your household income must be under $120,000 per year. At least one of the buyers has to be considered a first-time homebuyer by the following criteria:

  • You have never purchased a home before; or
  • You have gone through a breakdown of a marriage or common-law partnership
  • In the past four years, you have not occupied a home that you or your current spouse/common law partner owned

How do I pay back the loan?
This is an equity-type payout where costs are recuperated by the government upon the sale of the home, or after 25 years. If the value of the home has increased, the government would get a portion of the increase. Likewise, if the value has decreased, they would shoulder a percentage of the loss.

It’s important to note that you must pay back the loan as a lump sum - you would not be able to set up a payment plan as the amount you will owe is dependent on the value of your home at a specific point time.


How do you feel about the new incentive? Leave us a comment below or contact our office if you’re a first-time homebuyer wondering about your eligibility for the program.


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