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First-Time Home Buyer Incentive: All You Need to Know

Terraces at Oak Park, Vancouver
Would you like a higher down payment to lower your monthly mortgage payment? The first-time home buyer incentive program can help! The first-time home buyer incentive program adds 5% – 10% to your down payment, and can save you $100 or more a month on your mortgage payments. However, there’s a catch: you eventually have to pay the incentive back, and usually for more than what you get. In this post, I will cover everything you need to know about the first-time home buyer incentive program, so that you can determine if it’s right for you. I’ll discuss:
  • What the first-time home buyer incentive program is
  • How to qualify
  • Which types of homes qualify?
  • How it can affect mortgage payments
  • When you pay it back
  • If the first-time home buyer incentive program is worth it
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What is the First-Time Home Buyer Incentive Program?

The first-time home buyer incentive (FTHBI for short) is a shared equity mortgage. In other words, the federal government loans you a portion of your first home’s down payment. The incentive will be 5% or 10% of your home’s purchase price, depending on what you buy:
Home Type Incentive
Newly constructed home (you’re the first person living there) 5% or 10%
Already existing home (you’re buying from another homeowner) 5%
New or existing mobile or prefabricated home 5%
The larger down payment ultimately means your monthly mortgage payment will be lower. Also, the home buyer incentive doesn’t require you to make any interest payments, ongoing payments, or charge you prepayment fees. However, the home buyer incentive has a few strings attached. Since it’s a shared equity mortgage, the government has a shared investment in your property. When the property increases or decreases in value, it impacts you both. We’ll dive deeper into this a little later.

How to Qualify for the FTHBI

The qualifications can be a little confusing, so I’ll break them down step by step: First, you must be a first-time home buyer in Canada. If you and your spouse are buying a home together, but only one of you is a first-time home buyer, you’ll still qualify. Second, you must also be a Canadian citizen, a permanent resident, or a non-permanent resident who is legally authorized to work in Canada. Third, the combined annual income of all borrowers must be $120,000 or less. If you live in the Greater Vancouver Area (GVA), the Census Metropolitan Greater Toronto Area (GTA), or Victoria, the income cap is $150,000. Fourth, you must have at least 5% of the down payment. The down payment can come from money you’ve saved over time, as a gift from an immediate family member, or from your Registered Retirement Savings Plan (RRSP). Last but not least, the home buyer incentive is capped 4.5x the qualifying income for a property in GVA, GTA, or Victoria, and 4x for the rest of Canada. In other words, if you live in Manitoba and your salary is $75,000, your mortgage can’t be greater than $300,000. If you’re unsure if you qualify for the FTHBI, don’t hesitate to ask!

Which Types of Homes Qualify?

The following are qualifying homes for the FTHBI:
  • Single family detached house
  • Semi-detached house
  • Condominium units
  • Condo townhouse
  • Freehold townhouse
  • Duplex, triplex, and fourplex
  • Mobile homes

How Does the FTHBI Affect Monthly Mortgage Payments?

The FTHBI program aims to help middle-class first-time home buyers pay lower monthly mortgage payments without having to come up with a higher down payment. How much does it help? Let’s find out! Let’s assume that:
  • Your home’s purchase price is $400,000
  • Your interest rate is 4%
  • The FTHBI is 5%
  • Your mortgage loan is for 25 years.
Costs Without an FTHBI With an FTHBI Difference
Purchase price $400,000 $400,000 0
Down payment $20,000 (5% down) $40,000 ($20,000 + $20,000 FTHBI) $20,000 (your FTHBI)
Mortgage loan insurance premium $15,200 $11,160 $4,040
Mortgage amount $380,000 $360,000 $24,640 (your FTHBI + difference in mortgage loan insurance)
Monthly mortgage payments $2,078.83 $1,952.38 $126.45/mo; $1,517.40/yr
In this example, you’re saving $1,517.40/yr in mortgage payments. Over a 25 year period, that’s a savings of $37,935! More importantly, you’re saving money on mortgage payments during a crucial time in your life: when you’re house poor.

When Do You Pay Your FTHBI Back?

Your loan must be repaid after 25 years or when you sell your home, whichever comes first. When you start paying the government back, you’re paying for the percentage they gave you at your property’s current value. Let’s revisit the example above. Your home’s original purchase price was $400,000, and your FTHBI is 5%, or $20,000. 25 years later, your property’s fair market value is now $600,000. Since it’s a shared equity mortgage, you’re not paying the government back the original $20,000. Instead, you’re paying back the same percentage: 5%. 5% of $600,000 is $30,000, meaning you’re paying the federal government back $10,000 more than what you originally received.

Is the FTHBI Program Worth It?

Honestly, it all depends on your situation. In the above scenario, your home value increased by $200,000. You’d have to come up with an additional $10,000 if that happens to you. However, you will have saved $37,935 on monthly payments, so you’d come out ahead. Realistically, inflation could make your home worth a lot more in 25 years. From 1996-2021, the average price of a home increased by 375%. By those standards, if your home was worth $400,000 in 1996, it could be worth $1,500,000 in 2021. 5% of that is $75,000. The price of your home may not increase by quite that much, but we can’t predict the future, and home prices have skyrocketed in Vancouver recently. Something else to consider: many first-time home buyers will be looking at retiring 25 years from now. Coming up with the money to repay the federal government could inhibit that.

Final Thoughts

The first-time home buyer incentive is a new and well-intentioned government program. It’s interest free, and you won’t be charged a prepayment penalty if you decide to pay it back early. It can also reduce your monthly expenses and give you some breathing room after becoming a first-time home buyer. If you decide to join the program and get a shared equity mortgage, I’d recommend saving money over time and keeping an eye on your home’s value. Then, if/when your property value drops (because a lot can happen in 25 years), pay off your loan and call it a day! Would you like some more home buyer’s tips? Check out my 8 smart strategies for first-time home buyers, and bookmark my blog for market trends and insights.

First-Time Home Buyer Incentive FAQs:

Unlike other aspects of your loan that get paid back to your mortgage lender, the FTHBI gets paid back to the Canada Mortgage and Housing Corporation (CMHC), which runs the program.

Since it’s geared toward first-time buyers, the FTHBI isn’t meant for your investment property. However, you can purchase a duplex, triplex, or fourplex and rent out the other units.

If you and your partner are married or in a common law relationship, you may qualify for a FTHBI if the other first-time homebuyer requirements are met. I recommend double-checking with the CMHC just to make sure.

If a home renovation adds an additional $10,000 in value to your home, you’ll have to pay 5% or 10% of that to the CMHC after 25 years or when you sell your home. Unfortunately, that’s one of the downsides of shared equity mortgages. However, this shouldn’t deter you from renovating your home. Not only will your home look nicer after a renovation, you’ll enjoy 90% or 95% of added value.

While different regions offer different incentives, there are two other programs available to most Canadians: the land transfer tax rebate program, and the registered retirement savings plan (RRSP) for home buyers.