What You Need to Know about The First-Time Home Buyer Incentive

For those of you looking for a bit of a break getting into the housing market, you may be in luck! The new federal governments First-Time Home Buyer Incentive FTHBI is designed to alleviate mortgage costs for first-time home buyers and as of September 2nd will officially be open for business.

So, how does it work?
The government will provide shared equity loans of 5% toward the down payment of a resale home, and 5% or 10% for newly-built homes. The intention behind the incentive is by increasing the buyers downpayment, monthly mortgage costs will decrease, in turn providing some relief to the costs of home ownership. For example, a buyer receiving the maximum 10% loan on a newly-built home could save as much as $286 per month, resulting in $3,430 in savings per year, according to the CMHC. The funds provided are registered as a second mortgage, and don’t incur interest. This second mortgage must be paid back in full when the first insured mortgage matures at 25 years or when the home is sold, whichever comes first, though homeowners may pay it back as a lump sum early without penalty.

Because it is a shared equity mortgage rather than a traditional cash-value loan, the amount to be paid back will fluctuate along with the value of the home over time: if the home’s assessed value rises, the loan repayment will increase by the same per cent. However, the same will occur if the home has lost value by the time it is sold or the mortgage matures.

For example, let’s say the CMHC provides a 5% loan of $25,000 for a home purchase of
$500,000. The homeowner sells the home several years later, and its value has increased to $550,000. The homeowner would then need to pay the CMHC back $27,500 to reflect 5% of the increased value of the home. However, if the home loses value over that time period, only the original amount of $25,000 would be due to the CMHC upon its sale.