New First Time Home Buyer Incentive
The current Liberal government has introduced a new First Time Home Buyer (FTHB) incentive.
This incentive is intended to alleviate some of the strain put on FTHB’s by the increasing cost of real estate in major cities across Canada, as well as to help alleviate some of the impacts from the mortgage guideline changes put in place over the last few years.
While at first glance, it may seem like a great option for FTHB’s, a deep dive of the specifics is required to see whether this is truly beneficial.
First item I would like to address is that this program should not be called an “Incentive”, in actuality this program is an “Equity Sharing” program.
I’m not going to break down every point of this program, but I am going to provide a highlight reel of sorts.
First fact that needs to be clear, is that this program is only applicable for individuals who meet the following criteria;
- Annual household income of less than $120,000
- You are still required to have the minimum 5%+ downpayment from your own funds
- Even if the incentive increases your borrowing capacity, you still cannot borrow more than 4x’s your income
- There are some restrictions on the type of dwelling that can be purchased (but this is not typically going to be an issue for the average first time buyer).
Secondly, this program isn’t offering free money, participants are required to repay the amount in full. There are three options for repayment;
- Repayment at time of sale.
- Upon selling the home, whether property valuation has increased or decreased, you will be required to payback the percentage originally given to you (5% or 10%). If your home value has increased, you will be paying back more than you originally borrowed, if your home value has decreased, you will repay less than originally received.
- Repayment at any time during ownership of the home.
- If you have the ability to repay the loan during the time you own the home and wish to repay the incentive borrowed in full, you can do so at any time without penalty. You will be required to get an appraisal to confirm how much you are required to repay (as it is based on the homes valuation)
- Repayment at the end of 25 year amortization term
- If you remain in the same home for the full 25 year amortization term, you will be required to repay the equity loan in full at the end of the 25 years. Again, the repayment amount will be based on the valuation of your home at the time of repayment.
In addition, there may be costs that will also be incurred if you choose to partake in the incentive program. Since there will be multiple charges being registered against your new home, there will be additional legal fee’s, you will also likely be required to have appraisal’s conducted (at purchase and sale/repayment), the fee for which is the buyer’s responsibility.
This program does have it’s benefits, for those who can qualify and are comfortable with the equity agreement, it will help to lower the monthly mortgage payment requirements, and the mortgage insurance costs.
For the right person, this program may be a good option, but buyers need to heed the advise of professional’s to be certain they are fully informed before partaking in the program. For further information, or to start your application, please see links at the bottom of this article.
If you are preparing to purchase your first home, contact me any time to answer all your questions and get you pre-approved so that you can shop with confidence!