How the First-Time Home Buyer Incentive affects You!

How the First-Time Home Buyer Incentive affects You!

What is the First-Time Home Buyer Incentive?

The first-time home buyer incentive (FTHBI) uses a shared equity system between the homeowner and the Canadian government through the Canadian Mortgage and Housing Corporation (CMHC), Genworth or Canada Guaranty.

The aim of the incentive is to make it easier for Canadians to purchase their first home by lowering their monthly mortgage payments.

The incentive offers to absorb 5 percent of the monthly mortgage payment on existing construction and 10 percent on new builds.

The incentive is open to those who have not owned a home in the last four years with exceptions being made for those who have recently experienced a breakdown of marriage or common-law partnership.

The incentive is open only to households whose annual combined income is lower than $120,000 before taxes and deductions.

How does this impact requiring mortgage default insurance?

It is important to note that the either 5 percent or 10 percent the government chips in is not counted towards the 20 percent down payment required to forego mortgage default insurance. For example, if you put 10 percent down on a new-build home and the government contributes another 10 percent you would still be required to purchase mortgage default insurance even though you technically have a 20 percent down payment.

Mortgage default insurance protects financial institutions from default, the premiums are tacked on to your mortgage payments.

How does the government get paid?

This incentive is not entirely one-sided in favour of the consumer. There are three circumstances where the loan must be paid back to the government:

  1. If you re-finance your home;
  2. If you sell your home; or
  3. At the end of 25 years.

While the incentive is provided interest-free, the government still has shared equity in your home. This means that as your home gains and loses value the amount you are required to pay back to the government will fluctuate.

First-Time Home Buyer Incentive Flow Chart

Armstrong - Bentley & Associates | Royal LePage Binder Real Estate

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