FTHBI – First Time Home Buyer Incentive – Better Than We Thought!

Expanded First Time Home Buyer's Incentive
The First Time Home Buyer’s incentive provides a shared equity mortgage from the government of Canada.

The new First-Time Home Buyer Incentive allows first-time homebuyers, who have the minimum down payment, to apply to for a shared equity loan from the government. 

The interest free loan is 5% of the value of a resale home, and 5% or 10% for homes purchased straight from developers. 
*An amount in between 5% and 10% is not allowed.

I originally did not like this program because when it was announced as there were far too many unknowns. Now that the Government has cleared up most of my questions.

However, this program do NOT increase affordability, as some people expected. The main benefit of this program is to allow Canadians to save on monthly mortgage payments.

Released today, for Greater Vancouver, Victoria, and Toronto, the maximum purchase price is nearly $800,000, with a maximum mortgage (mortgage plus incentive) amount of $750,000.

Further, the maximum mortgage plus incentive can be 5 x income, verses 4 times.

Previously, and still for the rest of Canada, the maximum purchase price was just over $500,000 and maximum mortgage of $480,000.

For the vast vast majority of Vancouver and Victoria home buyers, this program wasn’t designed for you… However, the change in purchase price and criteria is very welcome.

*This change is only if the Liberals get re-elected. I personally welcome this news and move and hope that whoever does get elected would implement this strategy.

What’s Cool About This Program

  • No qualification criteria
  • Interest free loan
  • Monthly payments decrease
  • No pre-payment penalty
  • Your mortgage insurance premium is based on the loan-to-value ration of the first mortgages only, decreasing your overall CMHC costs. Very cool! Check out the chart below!

As stated above, this program doesn’t increase affordability. This is due to the requirement that the mortgage + incentive must be less than 4 x gross income now and 5 x if the Liberals get elected. This means that the real benefit here is to help with monthly payments.

Vancouver or Victoria Potential Purchase Example

First Time Home Buyer
(If the changes mentioned above are implement)

What I really like about this program is that even though the incentive is only $35,000, the government looks at both the down pay and incentive amount to calculate the insurance premium. That $35,000 turns into $41,980!

Another cool thing is that the extra $195 per month could be used to A) put towards the mortgage for a faster payoff, B) to RRSPs to decrease taxable earnings, C) to RESPs (everyone should invest in RESPs if they have kids), and D) TFSAs.

Currently Allowed Purchase (New Home)

You can save quite a bit of money per month if you have 10% of the property provided to you, on an interest free basis. This is not a program to scoff at!!

Conditions

  • Must be a first-time home buyer as recognized by the CRA’s RSP Home Buyers’ Plan
  • Must qualify for the mortgage and have mortgage insurance (your down payment plus the FTHBI cannot exceed 20% of the value of the property).
  • Total (all applicants) qualifying gross income cannot be over $150,000 for Vancouver, Victoria, and Toronto, and $120,000 for the rest of Canada.
  • Mortgage plus incentive cannot be over 4 times gross income.
  • Repayment of the loan is when the property is sold, or 25 years, whichever comes first. Refinancing of the first mortgage will not trigger a repayment. Or, it can be paid off at any time.
  • When paying off the FTHBI, the repayment is based on the property’s fair market value (sale price) or an independent appraisal.

The Downsides

  • The government will participate in any increase of the property’s value. IE, if your loan is 5% at the beginning. You would have to pay 5% of the new sale price. The government will also participate in any decrease in value as well.
  • There is an extra solicitor fee (~$300) for arranging this 2nd mortgage.

How To Apply

  • Talk to you favourite Mortgage Broker! We’re here to help.
  • The application is fairly simple:
    • Go to: http://placetocallhome.ca
      • Fill out the Consent & Privacy form on the website and hand it to your Mortgage Broker. Simple!

Pinsky Mortgages

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