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First-Time Home Buyer Help Starts September 2

August 16, 2019

The Federal Government’s new First-Time Home Buyer Incentive (FTHBI) will begin taking applications on September 2.

The program was the headline announcement in the March federal budget, and aims to improve the chances of young people climbing the property ladder.

Trudeau’s Liberals have committed $1.25 billion to the program over three years. The means-tested program will see the Canada Mortgage and Housing Corporation (CMHC) contribute either 5 or 10 per cent of a home’s purchase price, helping reduce the total mortgage amount. The incentive will be repaid after 25 years or when the home is sold, whichever comes first.

The example given in the budget announcement helps simplify the program:

If a borrower purchases a $400,000 home with a 5 per cent down payment and a 5 per cent CMHC shared equity mortgage ($20,000), the size of the borrower’s insured mortgage would be reduced from $380,000 to $360,000, helping to lower the borrower’s mortgage payments. This would make it easier for first time buyers to manage their monthly expenses.

The two amounts – 5 or 10 per cent are determined by the type of home you’re purchasing. Buyers of resale homes will be eligible for 5 per cent while buyers of new builds will be eligible for 10 per cent.

To qualify for the incentive, buyers will need to have a household income below $120,000 and you need to have a down payment (on top of the incentive) of at least 5 per cent, but no more than 14.99 per cent of the purchase price. The total mortgage and incentive amount together must be no greater than four times household income – so no more than $480,000 for buyers who are at the maximum threshold for eligibility.

That makes the maximum purchase price under the FTHBI approximately $565,000 – assuming maximum income of $120,000, a 14.99 per cent down payment from your own resources and a 5 per cent incentive from CMHC.

In this instance, the monthly repayments, assuming an interest rate of 3.19 per cent and amortization of 25 years, would be $2,384 without the incentive. With the 5 per cent incentive applied to the original purchase price the monthly payment is reduced to $2,243 – a $141 per month savings. That translates to almost $1,700 a year.

Here’s another example. Assuming you have only 5 per cent down, make $120,000 a year and are buying a new build, you’d pay $2,133 per month with the incentive and $2,411 per month without. That’s a $278 monthly payment savings, or over $3,300 a year.

On top of the payment savings, FTHBI users also save on the mortgage insurance premium—since the incentive lowers the amount financed.

This program is not necessarily the manna from heaven new homebuyers were hoping for, and will likely only be valuable to a small percentage of buyers. That’s because the FTHBI can reduce the amount you qualify for relative to a regular mortgage.

Homebuyers should carefully assess their budget before jumping into the market. Searching online to find the best mortgage rates can help buyers maximize their purchasing power.

The FTHBI is not the only tool in the government’s first-time buyer toolbox. New purchasers can also leverage the revamped RRSP Home Buyers' Plan. The updated program lets first-timer buyers now borrow up to $35,000 from their RRSP to use as a down payment on a home. That’s up from $25,000 before the budget was announced.

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