When buying your first home, don’t leave money on the table! Take advantage of the programs and incentives offered by the federal government that can help you achieve your new home.
1. FIRST-TIME HOME BUYER INCENTIVE (Effective September 3, 2019)
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.
What are the mortgage details?
- 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.
2. RRSP HOME BUYER’S PLAN
First-time buyers can withdraw from their RRSPs up to $35,000 per person tax free to buy or build a qualifying home, which can be a big boost to your overall downpayment, and may help you reach the 20% down needed to avoid mortgage default insurance premiums. You are required to repay the withdrawn funds on a 15-year repayment plan that begins the second calendar year after withdrawal.
3. FIRST-TIME HOME BUYER TAX CREDIT
Qualifying first-time buyers can claim a portion of their home purchase on their personal tax return for the year of purchase, which will help to offset your closings costs such as legal fees. The $5,000 non-refundable tax credit provides up to $750 in federal tax relief.
4. GST/HST NEW HOUSING REBATE
If you are purchasing a new construction home or performing substantial renovations to an existing home, you can recover some of the tax that you paid if all eligibility conditions are met. Canada Revenue Agency’s Guide RC4028 – GST/HST New Housing Rebate – has all of the specifics. Submit the form applicable to you along with your personal income taxes within two years of the actual closing date.
5. GREEN HOUSE PROGRAM
Homeowners purchasing a qualifying energy-efficient home with an insured mortgage are eligible for up to a 25% mortgage insurance premium refund, which can be a substantial savings! If you buy a home and renovate it to make it more energy-efficient you can also apply for this refund.