There are a few qualifiers to apply for this incentive:
you need to have the minimum down payment to be eligible
your maximum qualifying income is no more than $120,000
your total borrowing is limited to 4 times the qualifying income
If you meet these criteria, you can then apply for a 5% or 10% shared equity mortgage with the Government of Canada. A shared equity mortgage is where the government shares in the upside and downside of the property value.
How does it work?
The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.
Through the First-Time Home Buyer Incentive, the Government of Canada will offer:
5% for a first-time buyer’s purchase of a re-sale home
5% or 10% for a first-time buyer’s purchase of a new construction
How do I know how much I have to pay back?
You can repay the Incentive at any time in full without a pre-payment penalty. You have to repay the Incentive after 25 years or if the property is sold, whichever happens first. The repayment of the Incentive is based on the property’s fair market value.
You receive a 5% incentive of the home’s purchase price of $200,000, or $10,000.
If your home value increases to $300,000 your payback would be 5% of the current value or $15,000.
You receive a 10% incentive of the home’s purchase price of $200,000, or $20,000 and your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000.
NOTE: If your property value goes down, you are still responsible for repaying the shared equity mortgage based on the current home value at time of repayment.
NOTE: Once processed and accepted, you MUST call 1.833.974.0963 to activate the FTHBI payment and provide the name of the lawyer/notary you have chosen to close your deal. You must provide your lawyer/notary information as soon as you have chosen one and no less than 2 weeks prior to your closing.
If approved for the Incentive, the purchase transaction must close on or after November 1, 2019.
How much funding is available?
The total amount of funding will be $1.25 billion over 3 years.
For many Canadians, especially young people and first-time buyers, finding an affordable place to call home is not just a challenge – it feels like an impossibility. There aren’t enough houses for people to buy, or apartments for people to rent. That makes finding a good place to live too expensive and beyond what many people, especially younger Canadians, can afford.
This initiative is designed to help young Canadians access home ownership in a fiscally responsible and affordable way. Statistically this is the demographic group with the lowest percentage of homeownership.
How will this help younger Canadians struggling to save for a down payment?
In all cases, the borrower must meet minimum down payment requirements with traditional sources such as savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member. By obtaining the Incentive, the borrower may not have to save as much of a down payment to be able to afford the payments associated with the mortgage.
The Incentive is to help first-time homebuyers purchase their first home. Eligible residential properties include:
new and re-sale mobile/manufactured homes
Residential properties can include 1 to 4 units
Types of residential properties include:
single family homes
IMPORTANT: The property must be located in Canada and must be suitable and available for full-time, year-round occupancy.
Are mobile/manufactured homes eligible for the FTHBI program?
Yes, new or re-sale mobile homes are eligible for a maximum Incentive of 5%. Mobile/manufactured homes will be eligible for the Incentive where the unit is situated on either owned or leased land.
Can I buy a house using the program and rent it out?
No. The incentive is to help first-time homebuyers purchase their first home with the intent to occupy the property. Investment properties are not eligible.
There may be an exception for situations of hardship.
Incentive by Property Type
5% or 10%
New or re-sale mobile/manufactured home
What about renovations?
The Program Administrator does not need to be notified prior to a homeowner completing renovations on their home. It is recommended however that the homeowner consider the cost and benefits of the planned renovations, as the Government of Canada will share in any appreciation of the market value at the time of Incentive repayment.
Canadian citizens, permanent residents, and non-permanent residents who are legally authorized to work in Canada
Borrowers must have a maximum qualifying income of $120,000
Total qualifying income must be $120,000 per year or less
This is subject to qualifying income requirements set out by lenders and mortgage loan insurers
At least one borrower must be a first-time homebuyer, as per the definition below.
What is a qualifying income?
To be eligible for the FTHBI the combined qualifying income on your application cannot be higher than $120,000. That means whether you are applying by yourself, with a friend or a spouse you have to add your qualifying income and make sure it is less than $120,000.
Here are a few examples of qualifying income:
annual salary (before taxes)
Are you a first-time homebuyer?
You are considered a first-time homebuyer if you meet one of following qualifications:
you have never purchased a home before
you are experiencing the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements).
in the last 4 years, you did not occupy a home that you or your current spouse or common-law partner owned
IMPORTANT: It’s possible that you or your spouse or common-law partner qualifies for the First-Time Home Buyer Incentive (if you are in a married or common-law relationship) with the 4-year clause even if you’ve owned a home.
How does the 4-year period work?
The 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded. For example, if the Incentive will be funded on November 1, 2019, the four-year period begins on January 1, 2015 and ends on September 30, 2019.
Total borrowing is limited to 4 times the qualifying income. The combined mortgage and Incentive amount cannot exceed four times the total qualifying income. The amount for the mortgage loan insurance premium is excluded from this calculation.
The maximum threshold for debt service ratios are GDS 39% and TDS 44%. This is only applied on the first mortgage and is subject to requirements by lenders and mortgage loan insurers.
The Incentive is a second mortgage on the title of the property. There are no regular principal payments. It isn’t interest bearing and has a maximum term of 25 years.
The Government of Canada will share in the upside and downside of the property value upon repayment.
Is Mortgage Loan Insurance required?
Mortgages must be eligible for mortgage loan insurance through either Canada Guaranty, CMHC or Genworth. The first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium.
The premium is based on the loan-to-value ratio of the first mortgage only. That is, the first mortgage amount divided by the purchase price. The Incentive amount is included with the total down payment.
Mortgage loan insurance premiums may vary depending on the mortgage loan insurer and may be subject to provincial taxes.
What is Mortgage loan insurance?
It’s an insurance that protects a lender against default on a mortgage. Mortgage loan insurance is required for any mortgage where the down payment is less than 20% of the purchase price or market value of a home. As for the FTHBI, mortgages must be eligible for mortgage loan insurance through one of Canada’s 3 authorized Mortgage Loan Insurance providers, namely, Canada Guaranty, CMHC or Genworth.
What are the down payment requirements?
Minimum down payment is 5% of the first $500,000 of the lending value and 10% of the lending value above $500,000.
The minimum down payment must come from traditional down payment sources.
Note: Unsecured personal loans or unsecured lines of credit used to satisfy minimum down payment requirements are not eligible for the program.
Note: For 3-4 units properties, the minimum down payment is 10%.”
What is a traditional source of down payment?
Traditional down payment comes from the borrower’s own resources and may include:
withdrawal/collapse of a registered retirement savings plan (RRSP)
non-repayable financial gift from a relative
What is the closing date?
The date when the sale of the property becomes final, title to the property is registered, purchase funds are exchanged, and the new owner has the legal right to take possession of the home.
Can I switch my first mortgage to a different financial institution?
Yes, the first mortgage may be switched to a different financial institution without having to repay the Shared Equity Mortgage Loan (‘the Incentive’). The terms of the first mortgage may not be altered in this case. In some instances, there may be additional legal fees associated with switching your first mortgage when you have a shared equity mortgage registered against your property.
If I decide to purchase a new property, can I port (moving the mortgage to a new property) the Incentive along with my first mortgage?
A Port under the FTHBI program will be considered a sale which will require repayment of the Incentive.
Anita wants to buy a new home for $400,000 and has saved the minimum required down payment of $20,000 (5% of the purchase price).
Under the First-Time Home Buyer Incentive, Anita can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program.
This lowers the amount Anita needs to borrow and reduces the monthly expenses.
As a result, Anita’s mortgage is $228 less a month or $2,736 a year.
Ten years later, Anita sells the home for $420,000. The Incentive will need to be repaid as a percentage of the home’s current value.
This would result in Anita repaying 10%, or $42,000 at the time of selling the house.
Here’s another situation
John has an annual qualifying income of $83,125.
To be eligible for Canada’s First-Time Home Buyer Incentive, John can purchase condominium unit up to $350,000. John has the required minimum down payment of 5% of the purchase price, $17,500 from savings.
John can receive $35,000 in a shared equity mortgage – 10% of a newly constructed home.
This would reduce John’s mortgage payments by $200 a month or $2,401 a year.
Years later, John has decided to sell the condominium unit, but it is now worth $320,000. When the condominium unit is sold at the price of $320,000, John will have to repay the incentive as a percentage of the home’s current value. This would result in John repaying 10%, or $32,000 at the time of selling the house.
* These examples are for illustrative purposes only. Anita/John will need to repay the incentive at 10% of the fair market value when they sell the property or after 25 years, whichever comes first. All property values and home prices used in this example are not an indicator on how property values are forecasted
A mortgage is the amount of money you pay in increments towards your home, so you are able to slowly pay off the property. There isn’t just one mortgage that homeowners have to choose from. You have a wide array of choices that will make the process easier for you based off of your income stream. Any mortgage has an insurance in place to protect the lender from lost funds. Every mortgage is in a term. This is the period of which you will pay that type of mortgage. Which is between 1-5 years. After the term has ended you have to renegotiate for another mortgage during the renewal period.
Traditional mortgage is the initial process that let people comfortably pay off their homes. Just because it worked for others decades ago may not mean it is beneficial to you. You have an initial 5-20% down payment, while the remaining funds are slowly paid out over the course of years. If the property is a $1 million or more, it must be 20% due to the risk the lender would be taking on. Also note that if your mortgage is less than 20%, you have to pay an insurance premium to the Canadian Mortgage and Housing Corporation (CMHC).
Fixed rate mortgages is when the interest rate on the payments are set for the duration of the loan, as opposed to traditional which can change depending on the Bank of Canada’s decision for the rate. The rates are generally higher than traditional. This is for buyers who prefer more stability with their purchase, as they can also have a set sum to put towards it. Rates generally fluctuate, although not drastically, but it can be a headache if money is tight. The five year fixed rate is the most common mortgage in Canada.
High ratio mortgage is when the down payment is less than 20%, while the payment rate is higher than the typical fixed rate. This will ultimately pay off the mortgage off faster than traditional mortgage. A borrower is required to have a mortgage insurance with this type. Mortgage insurance reimburses lenders or investors if the buyer is unable to fulfill their obligation. This rate is typically chosen if the buyer wants to keep additional funds liquid when closing costs are distributed or emergency funds are required.
Adjustable rate mortgage is when the monthly rate and the interest rate can change. The Bank of Canada determines the prime rate, which determines the interest rate, altering the monthly payment. If the rate increases, this could negatively affect you, but if it decreases it could benefit you. This is a risk/reward type of payment. The fluctuations can happen a number of times every year. This is only recommended if you can financially withstand the potential for increases.
Variable rate mortgage is similar to adjustable rate, as the interest may change, but the monthly payments stay the same. This is also influenced by the prime rate. This is a more secure version of adjustable, there is some risk involved, but the payment is always set. Rates are generally lower with this rate, as fluctuations can negatively affect you.
Convertible mortgage is when you move from a variable rate to a fixed one. You can switch it the other way around but there is generally a penalty. When you move it, the rates increase to whatever the lender decides on, beginning a new term. If you expect rates to rise on a variable rate, this is a good option if you cannot handle the increase.
Hybrid mortgage is a blend of fixed and variable mortgages. Part of the loan is prorated at a fixed rate, while the other is doled out at a variable rate. This has the potential to be more difficult to manage, harder to renew and to transfer to a different lender. This is generally a more stable way of payment and gives you more security if rates do increase.
Closed mortgages have a specified limit of the percent you have to pay off each year. Payments over or below the determined rate can incur large penalties. It is difficult to renegotiate the rate until the term is complete. If you wish to alter it, you generally have to pay a fee if the lender does not approve it. It is one of the more restrictive mortgages.
Open mortgage is when you have set payments, but you are able to make additional payments without penalty. Most mortgages in Canada are open. They generally have higher interest rates than closed. This is the most flexible mortgage, it works alongside the comfort level of the buyer.
Portable mortgage is when you move your remaining mortgage to another property. Generally, no penalties are incurred for altering your mortgage. This requires a bridge loan, which is lent by the bank when moving funds from one property to the next. In order to move your mortgage to the next home (if it is possible), there must be a clause in it or you incur a fee. This type of mortgage can only be utilized when you sell your initial property. This gives you the option of starting a new mortgage, which could be beneficial if the interest rate is lower, but this may also incur additional fees.
Collateral mortgage is when the lender can provide more money to the owner as the value of the property increases, without having to refinance the mortgage. This is beneficial if you think you’ll need an additional loan. If you’ve fallen behind on payments, the bank can raise the interest rate as high as 10%. The lender cannot transfer the remaining funds to another party.
Vendor take back mortgage is when the seller of the property provides a loan of a portion of the price to the buyer. The seller still has equity in the property, while still owning a percentage equal to that of the loan, until the entirety is paid off.