4 Sep

First-time home buyer incentive: My insights


Posted by: Aneta Zimnicki

The government finally released more details on the first-time home buyer incentive program (FTHBI). To get a good overview of the program, you can check out the consumer website

Here are some of my remarks after perusing the information and manuals. There are some details which may catch consumers off guard. And as often with new programs, we will get better idea once we see the lenders put this to practice.

Essentially this is a shared equity program. You are going into business with the government. “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.” 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.

There are 2 calculations critical to eligibility, including a ‘mortgage to income’ calculation (it’s not exactly just 4 x income) and ‘maximum price’ calculation. Best to consult the online calculator. https://www.placetocallhome.ca/fthbi/eligibility-savings-calculator Program staff advise these calculations are hard stops.

Based on the calculator, if using max income of $120K, max purchase price is $564,700 (if 5% incentive for existing property, $84,700 down payment, yielding $28,235 incentive) or $533K price (if 10% incentive for new construction, $53K down payment, yielding $53,300 incentive).

Program staff state this is a Canada initiative, and acknowledge it is not one size fits all, so Toronto and Vancouver applicants may not see much use due to higher property prices. It wouldn’t be surprising if there is a frenzied interest in properties at the top price point of the incentive, $533K/$565K in certain higher priced markets, already adding to the competition of entry level homes.

For new construction you can choose incentive of 5% or 10%, nothing in between. Program staff advise 5% max incentive for new build triplex/fourplex. 5% incentive is for existing property.

Full rentals (duplex to fourplex) are not eligible, there must be at least one suite owner occupied. Note single unit rentals are already not eligible for mortgage insurance.

Minimum 5% downpayment from traditional sources including RSP homebuyer plan and gift are acceptable. Beyond the 5% min, it can be borrowed funds, as long as you can qualify with the debt ratios. Triplex/fourplex have min 10% downpayment.

You have to pay mortgage insurance (added to mortgage), and combined own downpayment plus incentive needs to be less than 20%. So min loan to value of 80.01%. Because it is insured, max amortization is 25 years. Theoretically, as advertised on their website, you have a ‘monthly savings’, but in the end, you still have to pay incentive back, most likely ‘with interest’ as calculated by the property appreciation.

Max $120K combined qualifying annual income, and at least one borrower must be a first-time homebuyer. It appears a way around this is dropping your spouse or co-applicant from application and title, in this way their income is not counted. But consult your lawyer on this one!

Income verification is subject to requirements set out by lenders and mortgage insurers. They advise that all income needs to be counted, including rental income (from subject property if there is rental suite, and unclear about portfolio rentals, safe to assume they count as well). In this case, borrowers may be challenged to show less income rather than maximizing income as in the typical mortgage application process. This incentive is not compatible with ‘business for self’ mortgage insurance program where it goes beyond the ‘verifiable’ income, shown on income taxes.

The incentive is registered as a second mortgage. It will be interesting how this plays out. Not all lenders are or will be participating, and some who have ‘collateral charge mortgage‘ may adjust their programs. Lender participation is discretionary and there is no lender list available. There may be additional legal costs because you are closing with 2 mortgages. And, although the incentive does not prevent you from changing lenders (as long as they accept the incentive program), a postponement/subordination agreement may be required. If you need a traditional ‘second mortgage’ (for example you can’t qualify for a typical refinance or need higher loan to value), this now get slipped to ‘third mortgage’ and the incentive may hinder you from getting this financing. The incentive always has to stay registered in second position.

Depending on original approved incentive (ie. 5% or 10%), repayment is required in full whether it is made at any point within or at the 25-year period or upon the sale of the property. Only one lump sum payment allowed. Appraisal absolutely necessary at time of repayment, as you can imagine, this will be one of the key documents, used to calculated the government’s ‘profit or loss’ on the incentive.

Refinancing does not necessarily trigger repayment of incentive, but the combination of charges can not exceed 80% LTV at time of refinance. A port however, does trigger repayment, as this qualifies as a sale of property.

It is recommended that you plan any renovations accordingly, as any value add means your repayment amount increases based on shared equity calculation (5% or 10% of property value). It may be worth your while to repay the incentive before major renovations or if you are anticipating significant property value increases.

Program states it is 3 year initiative, $1.25B over 3 years, first come first serve, the annual funds allotted beginning of each fiscal year. Earliest closing date is Nov 1, 2019 and latest closing date accepted Mar 31, 2024. Possible program phaseout with a new government?

Applications for existing property must be within 6 months closing, and new construction must close within 18 months of application. It appears they will not be overly forgiving with construction delays, perhaps a 1 to 2 month exception. Knowing how new construction is, this could be a potential issue with borrowers. You need to be clever with the timing when you submit to the incentive program.

A change in occupancy does not trigger repayment of the incentive. The manual states: “The first ranking lender is not permitted to knowingly allow a borrower to circumvent the eligibility criteria with respect to occupancy for the FTHBI Program. The Program Administrator does not need to be notified of a change in occupancy.”

4 Sep

Bank of Canada rate announcement

Latest News

Posted by: Aneta Zimnicki

Staying put before the election. Bank of Canada holds the rate steady. Your variable rate mortgage remains unchanged. Economic outlook is weak. Comment made about justifying current mortgage rules. Next announcement is Oct 30, days after the federal election.

“Given this composition of growth, the Bank expects economic activity to slow in the second half of the year.”

“Housing activity has regained strength more quickly than expected as resales and housing starts catch up to underlying demand, supported by lower mortgage rates. This could add to already-high household debt levels, although mortgage underwriting rules should help to contain the buildup of vulnerabilities. “