What is the First-Time Homebuyers Incentive?
The First-Time Homebuyers Incentive (FTHBI) is a program offered through the Canadian Mortgage and Housing Corporation (CMHC). It allows qualified first-time homebuyers reduce their mortgage payment with an interest free incentive.
This incentive provides a portion of the purchase price, which combined with the required downpayment, reduces the required mortgage.
Take a look at the following example:
Purchase Using FTHBI
Purchase Price $ 300,000
Downpayment ($ 15,000)
Minimum Required 5%
FTHBI ($ 15,000)
(5% for existing homes, 10% for new construction)
Total Downpayment ($ 30,000)
Purchaser's Downpayment (5%) plus FTHBI portion (5%)
CMHC's Insurance Premium $ 11,400
Required on Purchases with <20% Downpayment.
Total Mortgage Amount $ 281,400
Purchase Not Using FTBHI
Based on an interest rate of 2.90% compunded semi-annualy over a 25 year Amortization.
How Does It Work?
The program provides assistance in lowering your monthly mortgage payment by contributing to the overall downpayment. This exchange is referred to as “Shared Equity” where CMHC will share in the upside or downside of the market value of the home at the time of repayment.
The provided portion CMHC contributes at the time of purchase, either 5% or 10% of the purchase price, represents the portion of equity CMHC is entitled too. This portion must be repaid under these conditions:
How Much Incentive Will Be Provided?
The amounts are based on the home being purchased. If the property is an existing home, having been occupied before, the incentive will be 5% of the purchase price. If the property is a newly constructed home, the incentive will be 10% of the purchase price.
How Much is Owed? & How Does Repayment Work?
The amount owed is based on the incentive the Homebuyer received, 5% or 10% of the original homes value. The homebuyer must repay that percentage back based on the market value of the home at the time of repayment.
In other words, CMHC purchased 5% – 10% equity in the home at the purchase price. At repayment, for example the sale of the home, that 5% – 10% must be repaid to CMHC.
Keep in mind the repayment amount is based on the current market value/sale price. This means if the homes value increased since the time of purchase, that 5% – 10% repayment amount is larger. This also means if the homes value decreased since the time of purchase, that 5% – 10% repayment amount is smaller. There is no obligation to pay back the original incentive amount if the homes value has fallen below it’s original purchase price.
Take a look at each scenario:
How Do I Apply?
Talk to your Professional Mortgage Broker! He or She will work with you and determine if the CMHC First-Time Homebuyers Incentive is beneficial to you, based on your mortgage needs. Not all lenders are accepting this program but Brokers have the advantage in that we work with multiple lenders.
Ian Clark - Professional Mortgage Broker
As part of the mortgage process, I arrange the application and facilitate the incentive with the Bank and Lawyer. Just another thing off of your plate.
What if I am Applying with Someone Else?
Whomever is on the mortgage will also be on the Shared Equity Agreement. However, unlike Provincial Programs, such as the Newfoundland’s First-Time Homebuyers Plan, only one person must meet the eligibility criteria.
Who is Eligible?
To qualify for the Incentive, the following must apply:
- they have never purchased a home before; or
- in the last 4 years, they did not occupy a home that they or their current spouse or common- law partner owned; or
- they are experiencing a breakdown of a marriage or common-law partnership (in certain cases, even if/when the other first-time Homebuyer requirements are not met).
Please Note, It is possible that you or your spouse or common-law partner qualifies for the Incentive (if you are in a married or common-law relationship) with the 4-year clause even if you have owned a home previously.
The maximum of one Incentive includes any variation of borrower or co-borrower (i.e. once an Incentive is advanced to a Homebuyer, that Homebuyer is not eligible for any additional Incentives regardless of any other new first-time homebuyer named on the application).
What Types of Properties are Eligible for the Incentive?
The home must be the Homebuyers primary residence and eligible for CMHC Default Insurance, have year round access, permanent heat source and located within Canada.
Do I still Need A Down Payment?
The minimum downpayment required to purchase a home is 5%. Only traditional sources will be accepted, such as:
Borrowed downpayments such as, an Unsecured Personal Loan or Line of Credit are not acceptable sources of downpayment.
Are there any other Requirements?
In order for the Incentive to apply, the first mortgage must be greater than 80% of the value of the home. In other words the downpayment cannot exceed 19.99% of the purchase price.
Are there any Costs Associated?
There is no application or processing fee payable to CMHC.
I Ian Clark do not charge an application or processing fee, nor have any cost when arranging your purchase.
The homebuyer is responsible for repayment and costs associated with valuing the home at time of repayment. For example if the homeowner was to repay the incentive but is not selling the home at that time, an appraisal would be required to determine the homes market value. The cost of the appraisal would be the homeowners responsibility.
The homebuyer is also responsible for certain third-party expenses, such as closing services, legal costs and other expenses associated with the purchase.
What about Renovations?
The repayment amount is based on the homes market value. If considering renovations which will increase the homes value, it would be beneficial for the homeowner to repay the incentive prior to any major work being completed on the home.
What if I want to Refinance the Home?
The home can be refinanced without making immediate repayment of the incentive. The refinance must not exceed 80% of the total value of the home.
As time goes on, I believe more details will be released regarding refinancing options for those using the Shared Equity Incentive. It is difficult to say whether each lender will allow the refinancing of certain mortgage structures, as not all lenders will follow the same lending guidelines and policy.
Is there another Mortgage Registered Against the Home?
The Shared Equity Mortgage is secured by registering against the home as a second mortgage.
The First-Time Homebuyers Incentive is a great tool for reducing a homebuyers monthly mortgage payment. Be sure to ask your Professional Mortgage Broker any questions you may have and be sure to fully understand how the program works before committing to it. Ask yourself these two questions:
- What will you do with the money you save each month?
- How long do you plan on living in the home?