The Government of Canada’s First Time Home Buyer Incentive Program helps people across Canada purchase their first home. The program offers first time home buyers 5-10% of the subject homes purchase price as a down payment toward that home. The program itself is a shared equity mortgage, meaning the government ultimately owns that 5-10% of the home value, and shares in the upside and downside of the property value as markets fluctuate. The 5-10% ownership is due back to the government upon sale of the home, or following 25 years, whichever comes first.
What does the Government of Canada consider a first time home buyer?
A first time home buyer, in its most simple form, is one who has never owned a home before. There are also a few other criteria that fit into this definition however. It also applies if you did not occupy a home that you or your current spouse or common-law partner owned in the past 4 years, or if you have recently experienced a breakdown in marriage or common-law partnership.
How do you qualify?
If you meet the definition of a first time home buyer, congratulations! You're on your way. There’s a couple more requirements that need to be met before you can receive this incentive:
- Your total annual qualifying income must not exceed $120,000 - if there are multiple borrowers, this is a combined income.
- The total amount to be borrowed cannot exceed 4x your qualifying income
- You and/or your partner fit within the definition of first time home buyer
- You meet the minimum down payment requirements for the home value with traditional funds (savings, RRSP withdrawal, non-repayable gift)
How does the program work?
The incentive is essentially a second mortgage placed on your home. The first mortgage must be a high ratio mortgage, meaning it must be greater than 80% loan to value, and must be eligible for mortgage default insurance through Canada Guaranty, CMHC, or Genworth. No mortgage default insurance is paid on the incentive however, the incentive is included with the down payment.
The incentive is applicable to residential properties only and includes the following types of homes with the eligible incentive percentage:
- New construction purchase 10% incentive
- Existing home purchase 5% incentive
- Mobile/manufactured home purchase 5% incentive
What are the benefits?
Increasing your down payment has multiple lasting financial benefits. A larger down payment equates to a lower principal mortgage, meaning you will ultimately pay less in interest over the lifetime of your mortgage. You may also benefit from increased cash flow due to a lower monthly mortgage payment, helping you more comfortably afford your lifestyle, or build up savings for that next home improvement. Some may also opt to keep the mortgage payment on the higher side with a reduced amortization term, significantly decreasing the amount of interest paid over the lifetime of the mortgage.
What to be aware of?
Using this incentive may carry some extra additional fees due to the extra paperwork required. Some extra fees on closing of the mortgage and real estate transaction could include additional appraisal fees, additional home insurance fees, additional legal fees due to handling of two mortgages.
How is the incentive repaid?
The two most common ways the incentive is required to be repaid is upon sale of the property, or at the end of the 25 year period the incentive is applicable to. Other occasions to be aware of might include refinancing of the mortgage where additional funds are required, porting of a mortgage, partial release of security, or upon a change of the intended use of the property.
Need more information about what incentive programs might apply to you? Are you currently enrolled in an incentive program, and are unsure about what mortgage options you have? Give us a call today for a free consultation, and we can explain what effect changing your mortgage might have on your incentive. Check out our website.