The First Time Home-Buyer Incentive will be implemented by Federal Government to make it easier for middle class Canadians to buy their First Home.
First-Time Home Buyer Incentive will help middle class families take their first steps towards homeownership by reducing monthly mortgage payments required for first-time homebuyers without increasing the amount they need to save for a downpayment.
Facts about the First Time Home buyer Incentive:
- The program will launch on September 2, 2019, with the first closing on November 1, 2019.
- The incentive will allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage with CMHC, Genworth or Canada Guaranty, to apply to finance a portion of their home purchase through a form of shared equity mortgage with the Government of Canada.
- You need to have the minimum down payment to be eligible. For the purchase of an existing home, an incentive amount of 5 percent may be available. For the purchase of a newly constructed home, an incentive amount of 5 percent or 10 percent may be available.
- No on-going repayments are required, the incentive is not interest bearing, and the borrower can repay the incentive at any time without a pre-payment penalty.
- The buyer must repay the incentive after 25 years, or if the property is sold.
- This incentive aims to help first-time homebuyers without adding to their financial burdens. There are no additional monthly payments. Participants must meet minimum insured mortgage down payment requirements.
- Mortgages must be eligible for mortgage loan insurance. The first mortgage must be greater than 80% of the value of the property. This is subject to a mortgage loan insurance premium based upon the amount of the first mortgage.
- Mortgage loan insurance premiums may be subject to provincial taxes.
- Repayment is based on the property's fair market value.
- The incentive will be available to first-time homebuyers with qualified annual household incomes up to $120,000. At the same time, a participant's insured mortgage and the incentive amount cannot be greater than four times the participant's qualified annual household income or up to $480,000. That means the most expensive home you can hope to buy under the plan would be worth somewhere between $500,000 and $600,000, depending on the size of your down payment.
Per the table below, for a family buying a $500,000 home, this program could save them as much as $286 per month or more than $3,430 a year (note: results may change depending upon amortization, interest rate, term, etc.).
|
without FTHBI |
with FTHBI |
without FTHBI |
with FTHBI |
without FTHBI |
with FTHBI |
|
|---|---|---|---|---|---|---|
|
House Price |
$200,000 |
$200,000 |
$350,000 |
$350,000 |
$500,000 |
$500,000 |
|
Down Payment (5%) |
$10,000 |
$10,000 |
$17,500 |
$17,500 |
$25,000 |
$25,000 |
|
FTHBI (10%) |
NA |
$20,000 |
NA |
$35,000 |
NA |
$50,000 |
|
Insured Mortgage |
$190,000 |
$170,000 |
$332,500 |
$297,500 |
$475,000 |
$425,000 |
|
Insured Mortgage + Mortgage Insurance Premium |
$197,600 |
$174,760 |
$345,800 |
$305,830 |
$494,000 |
$436,900 |
|
Monthly Payment* |
$989 |
$875 |
$1,731 |
$1,531 |
$2,473 |
$2,187 |
|
Savings on Monthly Payment |
$114 |
$200 |
$286 |
|||
|
Savings on Yearly Payment |
$1,372 |
$2401 |
$3,430 |
|||
The First-Time Home Buyers' Tax Credit (HBTC) is non-refundable, which means it can only be used to reduce the amount of tax you may owe. The credit should be claimed on your federal income tax return.
You are eligible for the HBTC if:
- You (or your spouse or common-law partner) bought a qualifying home in Canada and the home will be your principal residence.
- You are considered a first-time home buyer if you (or your spouse or common-law partner) did not own and live in another home in the year of purchase or any of the four prior years.
If you are not considered a first-time buyer now, you may be considered a first-time home buyer later, once the four-year period has passed. If the house price goes up, the government will get a percentage of the price increase. And if the house price decreases, government will shoulder a percentage of the loss. For example, a new house that is purchased for $100,000 could qualify for a 10 per cent interest-free loan worth $10,000. If the home was later sold for $110,000, the home buyer would need to repay $11,000.
IMPORTANT: With the 4-year clause, it is possible that you or your spouse or common-law partner qualifies for the first-time homebuyer incentive (if you are in a married or common-law relationship). Even if you or your spouse or common-law partner has previously owned a home.
How does the 4-year period work:
- The 4-year period begins on January 1 of the fourth year before the year you purchased your home. It ends 31 days before the date you purchase your new home. Here are a few examples:
- if you purchase a home on March 31, 2019, the 4-year period begins on January 1, 2015 and ends on February 28, 2019
- if you sold your home you lived in in 2013, you may be able to participate in 2018 or if you sold the home in 2014, you may be able to participate in 2019
Traditional downpayment comes from the borrower's own resources and may include:
- Savings
- Withdrawal/collapse of a registered retirement savings plan (RRSP)
- Non-repayable financial gift from a relative
Note: Unsecured personal loans or unsecured lines of credit used to satisfy minimum down payment requirements are not eligible for the program.
To understand better here is another example:
Nataly wants to buy a new home for $400,000.
Under the First-Time Home Buyer Incentive, Nataly can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program. This is on top of the minimum required down payment of $20,000 (5% of the purchase price) from her savings.
This lowers the amount she needs to borrow and reduces her monthly expenses.
As a result, Nataly's mortgage is $228 less a month or $2,736 a year.
Years later, Nataly has sold her first home for $420,000. At this time, she would now have to repay the original incentive she received as a percentage of her home's current value. This would result in Nataly repaying 10%, or $42,000 at the time of selling her house.
The Canadian Government also raised the Home Buyers' Plan (HBP) limit from $25,000 to $35,000.
First-time home buyers purchasing a home jointly with a spouse or partner can now each withdraw up to $35,000 from their own RRSP under the HBP, for a total down payment of $70,000. This applies to HBP withdrawals made after March 19, 2019.
The main benefit of an HBP withdrawal is the ability to withdraw up to $35,000 from your RRSP without having to pay tax on that withdrawal. This is different from regular RRSP withdrawals, which appear on a T4RSP slip and must be added to your income - and taxed at your marginal rate - in the year of withdrawal. Instead, the HBP withdrawals must be repaid over a 15-year period. Any amounts not repaid on time are included in your income and taxed at your marginal tax rate in the year of non-repayment.