Canada government has officially launched its very awaited First Time Home Buyer Incentive (FTHBI) from September 2 this year. Since its revelation in March, it has been a topic of constant debate among brokers and home buyers whether it is a good program for the Canadians or not. So, what’s in the FTHBI , let’s break it down.
What’s the First Time Home Buyer Incentive, shortly called FTHBI?
Well, first thing’s first – it is designed for first time buyers, obviously. The FTHBI program will share your mortgage and share your equity for the house. It will provide you a shared equity loan on your down payment with zero interest, yes with zero interest. If it’s a resale home, FTHBI will provide you 5% incentive whereas for newly built homes, it’s 5% or 10%.
The basic idea behind the equity loan is that by increasing the buyer’s down payment amount, the FTBHI aims to bring down the mortgage costs. It is designed to reduce the mortgage cost for first time home buyers and give them some relief in the monthly Payments.
How does it work ?
The incentive that you get through FTHBI is counted as a second mortgage and it doesn’t incur any interest. This interest free second mortgage must be fully paid back by the time your first insured mortgage matures in 25 years or if you sell your house, whichever comes first. You may also pay it back as a lump sum early if you have the money.
Because it is a shared equity mortgage with the government, the amount to be paid back will go up and down over the time because your house may increase or decrease in value. If the house’s assessed value goes up, up goes the repayment amount or if it goes down, down goes the repayment amount.
However, not everybody is eligible for this program. There are some criteria.
Who can apply for FTHBI ?
Here are the criteria that must be met for being eligible for FTHBI:
- Applicants must be a first time home buyer. He / She must not have owned a house in the last four years. However there are exceptions made for marriage breakdown and common law partnership issues.
- The home buyer’s combined annual household income must be lower than $120,000 before taxes and deductions. The annual income also includes your rental income if any part of the home is tenanted out.
- You must at least have 5% down payment saved in order to qualify for an insured mortgage.
- The applicant’s Mortgage to Income (MTI) Ratio cannot be over 4 times their income, including the loan provided by the FTHBI. This means that, in a resale home, the maximum down payment for a resale home cannot be over 14.99% and in a newly build home, the maximum down payment cannot be more than 9.99%.
Some believe that the government is taking the profit out of the investment by sharing the equity but not sharing the monthly mortgage payment whereas buyers are obliged to pay it. Others claim that government is not sharing the mortgage payment because they are not charging the interest whereas other lenders will definitely charge interest.
The FTHBI is more likely to benefit residents in less crowded markets, like parts of Simcoe County, especially Barrie and Area where you can still find homes below the price cap. So if you are ready to buy that house and you are looking for a Mortgage broker in Barrie, I can help you find the right options.
Want to know more about the program? Let’s set up an appointment to discuss about your options. Contact me today at 705-896-7252 or you can go to our Contact Us section.