First-Time Homebuyers Incentive Launches Monday
First-time buyers can submit applications for the Federal First-Time Homebuyers Incentive as of Monday, September 2, 2019.
Just to be clear, the First-Time Homebuyers Incentive is a loan.
If you have an income up to $120K and want to buy your first home you could be eligible to reduce your mortgage payments without increasing your downpayment.
The incentive is applicable to new homes, existing homes, new and resale manufactured/mobile homes. If you’re buying a new construction home the incentive is a 10% reduction and 5% for the other property types.
“Potential additional benefit to the purchase would be the reduction in the tiered CMHC insurance premium that would have to be paid,” said Tom Gasparec, a mortgage agent with The Mortgage Centre.
“With only five percent down coming from the buyer, the CMHC insurance premium added to the mortgage would be four percent. On a $500K purchase price that equals $20,000. If the buyer uses the FTBIP on a new construction purchase with the FTBIP kicking in an extra 10 percent down for a total of 15 percent down payment, the CMHC insurance premium is reduced to 2.80 percent which equals $14,000 instead of $20,000. This gives the buyer and FTBIP a shared savings of $6,000 on the total mortgage amount required.”
The insured mortgage and incentive amount cannot be greater than 4x the qualified annual household income.
Homebuyers be aware(beware?) that using the incentive means the government will share in both positive and negative changes in the value of the property.
The incentive must be repaid after 25 years or when the home is sold, whichever happens first. It can be paid back in full at any time without penalty or you can choose not to pay anything back for the 25-year period.
The amount of the incentive that needs to be paid back is calculated using the property’s fair market value at the time of repayment. The incentive is to be repaid whether the property value increases or decreases. No interest is accumulated on the incentive.
“Buyers utilizing the program ideally should be in frequent communication with their mortgage professional to determine at the earliest point that a refinance would be possible to payout the FTBIP,” said Gasparec.
“Assuming a 10 percent annual appreciation our estimation shows that there would be sufficient equity to payout the 10 percent incentive shortly after year two of owning the home. This strategy would provide the buyer with optimal return on investment utilizing the program.”