Feds Reveal Details of Home Buyer Incentive

The federal government has announced its First-Time Home Buyer Incentive will launch on Labour Day.

Under the program, the government will help some first-time buyers by advancing an interest-free loan of up to 5% of the purchase price of an existing (resale) home, and up to 10% of the cost of a new home. This will allow home buyers to take out a smaller mortgage and keep their monthly payments lower. According to Families, Children and Social Development Minister Jean-Yves Duclos, the measure will reduce the monthly mortgage on a first home by up to $286.

Buyers must repay the incentive in full after 25 years or when the property is sold, whichever comes first. The loan would be a second mortgage on the title of the property. It has no interest nor regular principal payments, and there is no penalty for early repayment.

The government will share in the upside and downside of any change in property value when the property is later sold. If the home price goes up, so too does the amount owed to Ottawa. If the value goes down, the government will shoulder a percentage of the loss.

For example, a resale property that is purchased for $400,000 could qualify for a 5% interest-free loan worth $20,000. If the home was later sold for $500,000, the homeowner would need to repay $25,000, which is 5% of the current value.

The loan will be available to first-time home buyers who have the minimum 5% down payment for an insured mortgage with the Canada Mortgage and Housing Corp. (CMHC), Genworth or Canada Guaranty. Buyers must have a household income of no more than $120,000 a year. At the same time, the amount of the insured mortgage plus incentive will be capped at four times the home buyers’ annual incomes, or up to $480,000. Depending on the size of the down payment, the most expensive home a first-time buyer can purchase under the plan will be between $500,000 and $600,000, effectively shutting out many Torontonians given that it’s difficult to find homes in the city in that price range.

The incentive program works on a first-come, first-serve basis. The total amount of funding will be $1.25 billion over three years.

The government will begin taking applications Sept. 2; however, the first payments will not flow until Nov. 1, two weeks after the federal election.