Pros And Cons of Canada’s first time home buyers incentive

The First time home buyers incentive has been an overall pretty good program, however it is not for everyone. Today we are going to explain all of the pros and cons of Canada’s first time home buyers incentive from CMHC.

In the latest update of the first time home buyers incentive, CMHC has tried to mitigate some of their loss by introducing a 8% limit per year on loss or gain that they are willing to pay. If you know and understand the program, you will know that CMHC the facilitators of the program shares in you loss or your gain.

I assume from a business perspective CMHC believes that there will be a gain in property value for the most part in Canada, hence why they share in gain. They want to make money off of you and the program!

Latest Rule Change from the first time home buyers incentive

The latest rule change is that the government will share in your upside or downside up to 8% per year. In other words if you own a property and are at the end of the program when you either sell the property or the 25 year payback period comes up, you will either have a loss in value or gain in value.

Do you have to pay back the first time home buyers incentive?

Yes you have to pay back the first time home buyers incentive, either when you sell the property, or after a 25 year term is up.

Example of the latest rule change to the first time home buyers incentive

As an example, I will use a property with a value of $100,000 when you purchase it.

$100, 000 purchase price

•   $5000   5% Downpayment from savings
•   $5000   5% Downpayment from the first time home buyers incentive

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Mortgage amount $90, 000

$150, 000    Property value when the client sells the property (after 5 years)

$50, 000 Gain! in 5 years

Amount you have to pay back is $150, 000 x 5%= $7500

Lets double check our math based on new rules

$50, 000 gain x 8%= $4000 per year is the max they would re-pay

$4000 x 5 years= $20,000 max over the 5 year term

So you would have to re-pay them $7500 or the original $5000 your were given.

What is the benefit of the first time home buyers incentive in Canada?

Benefit to the client is that they will have lower payments due to the larger downpayment.

Pros of the first time home buyers incentive

1. The government will give you up to 5% for the incentive if you qualify.
2. You will get lower payments
3. Governments gives you up to 10% for new properties
4. Government gives you 5% for used properties and mobiles
5. Very simple application process
6. Lawyer receives the money seamlessly
7. You will pay less interest
8. You will be able to qualify for a more expensive home due to the program
9. Decreases the cost of mortgage insurance
10. Interest free loan up to 25 years!

Cons of the first time home buyers incentive

1. There is a $120, 000 household income cap Meaning if your household makes more than this, you will not qualify
2. There is a second mortgage registered on title (it becomes a little more expensive to register, and to refinance)
3. You have to pay it back when you sell it or after 25 years
4. The government shares in you gain or loss, of course expecting gain. So generally you have to pay back more than you borrow

5. They cap the gain at 8% per year to mitigate potential loss

Do you qualify for more in Vancouver, Toronto or Victoria?

Yes you do qualify for a lot more in these cities due to their increase cost of living and real estate prices.

First of all the house hold income maximum increases to $150, 000 in these cities compared to the rest of Canada being at a maximum household income of $120,000.

Second of all in these cities the total qualifying amount is 4.5 x your annual income compared to 4x you annual income.

How do you qualify for the first time home buyers incentive?

I have written a lot more detail on this in my blog articles about the first time home buyers incentive with examples. But to summarize if you annual income is $120, 000 (the max) then you qualify for a total mortgage amount up to 4x $120, 000 = $480,000

If you make more than $120k you do not qualify.

If you have any questions about the first time home buyers incentive, please call me anytime at 780-278-4847.