It’s actually happening. Canada’s First-Time Home Buyer Incentive (FTHBI) comes into effect today and it will make it a whole lot easier for young people to buy homes. Applications are officially being accepted as of today. If approved for the incentive, the purchase must close on or after Nov. 1, 2019.*
The program was imagined specifically to help young people buy their first homes without having to incur crippling monthly mortgage payments. FTHBI was introduced by the Liberal Government in their 2019 budget. As of now, the government will be absorbing five percent of mortgage payments on homes that already existed and 10% on new homes. Therefore, you can decrease your monthly payments without having to increase your down payment.
This means that if you are buying a $500,000 home, this new incentive could save you $286 per month and more than $3,400 per year.
However, the money put forth by the government must be repaid after 25 years or if the property is sold. The total funding available is $1.25 billion over the course of three years. If the property is sold at a higher value than it was bought, the government will be taking a cut. If the value has declined, the government will take a hit. Naturally, it’s not as easy as simply buying a home and waiting for the government’s assistance to kick in. There is a little bit of red tape you should be aware of.
In order to qualify for the incentive, you must be prepared to pay the minimum down payment, you must make no more than $120,000 annually, and your total borrowing can only reach four times the qualifying income. Also, buyers who are able to put down more than 20% for the down payment are not eligible for the Incentive. In terms of the income requirements, this is in regards to your entire household, meaning your combined income cannot exceed $120,000, and this includes investment earnings.
Though many Canadians are looking forward to some support when diving into the real estate market for the first time, the Incentive has also received a great deal of skepticism.
For example, Tom Kmiec, Conservative Party Member of Parliament for Calgary Shepard, said in a recent podcast that he isn’t in support of using $1.25 billion of tax-payers’ money to “gamble on the real estate market.” He also stated that sharing a decision as large and personal as buying a home with the government isn’t a good idea.
Though any help with repaying debt sounds immediately enticing, it's important to understand the long-term ramifications of using this type of incentivized support. If you've got your ducks in a row and you want to apply for the program, you can do so online now. If you want more information beforehand, you can find it here.
*This article has been updated.