Sep 19, 2019
Back in March, the 2019
federal budget announced changes
that will affect home buyers. These new measures aim to support buyers and
improve affordability for Canadians who are ready to
own a home. One of these new measures is the “First-Time Home Buyer
Incentive”, which the federal government launched on September 2, 2019.
This incentive helps Canadians obtain financial aid from the
Canada Mortgage and Housing Corporation
(CMHC). The CMHC will provide homebuyers with financing of 5% for resale
homes and 5% or 10% for new constructions. This money is a loan that goes
towards the down payment
of a home, lowering the monthly mortgage
While this all sounds great, we know that there’s no such
thing as a free lunch.
So, here’s everything that you need to know about the incentive
before you buy
a new home.
All Canadian citizens, permanent residents and non-permanent
residents who are legally authorized to work in Canada can apply for the
To be considered eligible, applicants must be a first-time
homebuyer. This definition also includes individuals who have gone through a
“breakdown of marriage or common-law partnership” or who didn’t live in a home that
they owned in the past four years.
Other eligibility requirements include:
It’s important to note that only CMHC insured mortgages are
eligible. This means that buyers must have a down payment of less than 20%,
including the First-Time Home Buyer Incentive amount.
Have more than 20%
saved? Check out our mortgage tips for first-time homebuyers.
If you qualify for the incentive,
the Government of Canada will provide you with a loan in the form of a shared
equity mortgage. This means that the government will own a portion of your home
and will share in the gains or losses of its value.
The incentive is an interest-free loan to which the borrower
does not need to make any ongoing payments. Instead, the loan must be repaid
either when the home is sold or after
25 years, whichever happens sooner. You can also repay the incentive at any
time without a penalty.
You need to repay the percentage you borrowed (5% or 10%) on
the home’s fair market
value at the time of repayment, rather than the amount borrowed. So, if
your home goes up in value, you will need to pay back more than you borrowed.
If your home goes down in value, then you will pay back less than you borrowed.
For example, you received an incentive of 5% for a $500,000
home ($25,000). If the value of the home increases to $600,000, then you repay
5% of the current value ($30,000). If the value decreases to $400,000, then you
repay 5% of the current value ($20,000).
For this reason, it may be advisable to repay the incentive
early if you are planning any renovations. While the government does not share
in the cost of the renovation, it will benefit from any appreciation in the
With the incentive, you are able to increase the amount of
your down payment, which lowers the amount of insured mortgage needed to buy
the home. This means that you will pay a lower insurance premium and a lower
monthly mortgage payment.
Using our mortgage calculator
for the example above (assuming an interest rate of 5.19% and a 25-year
amortization period), the monthly payment is $2,814.22 without the incentive
and is $2,666.11 with the incentive. This means, that you will save $148.11 per
As with any decision, it’s important to consider the risks
and rewards. Now that you have a better understanding of the program, you can
make an informed decision about whether it’s right for you.
Yes, I’m interested.
Start your search for a new home and
contact a lender. Then,
fill out the application
forms and bring them to your lender. They will submit it on your behalf.
No, this isn’t for
me. Continue saving
for your down payment and get one step closer to becoming
Homicity helps you find your dream home in the perfect community. Whether you are buying, renting, or selling, you can navigate the Canadian real estate market with confidence with our expert advice, market news, and recommendations powered by AI.
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