By Penelope Graham

The First-Time Home Buyer’s Incentive – the federal government’s much-debated mortgage equity sharing program – went into effect Sept. 2. It’s designed to reduce monthly mortgage costs by boosting qualified buyers’ down payments with an interest-free cash infusion from Canada Mortgage and Housing Corp. (CMHC) (five per cent for resale homes and five per cent or 10 per cent for new builds).

Critics of the incentive say its criteria is too restrictive to have much of an impact on affordability, especially in Canada’s most expensive housing markets.



The biggest points of contention have been focused on the FTHBI’s income and mortgage-to-income (MTI) restrictions. To qualify, first-time home buyers (meaning they have not owned a home or lived in one owned by their spouse, in the last four years) and cannot have a combined household income that exceeds $120,000. Their MTI cannot exceed four times that amount. This income cap also applies to any guarantors co-signing the mortgage, as well as any forecasted rental income, should the home have a secondary suite.

The way the math shakes out is, assuming a buyer has the maximum income and is making a five-per-cent down payment on a resale home, the maximum home purchase they could make using the FTHBI is $505,000.

Not surprisingly, new data finds that this makes usage of the FTHBI less feasible in the nation’s urban centres. A study from Zoocasa of 25 major markets finds that, based on average home price, properties in six cities would not qualify:

  • Greater Vancouver (Average home price: $967,314)
  • Greater Toronto (Average home price: $806,755)
  • Fraser Valley (Average home price: $717,301)
  • Victoria (Average home price: $652,655)
  • Hamilton-Burlington (Average home price: $600,577)
  • Kitchener-Waterloo (Average home price: $520,750)

For those looking to utilize the FTHBI in smaller or secondary markets, however, there is some good news – the study found 19 of the assessed markets had average prices that fall within the qualifying threshold.

It’s important to note that this is a look at average home prices; in each market, there may be housing stock priced low enough to qualify, though agents will be harder pressed to find such options in the Vancouver and Toronto markets.

Should your client use the FTHBI?

Tapping into government funds to ease entry into the housing market may seem like an appealing approach – but it’s not a fit for everyone.

First, to qualify, your client must still have a minimum down payment (between five and 7.5 per cent) saved of their own funds to put towards the home purchase, and they must also satisfy the requirements for an insured mortgage, which assumes their credit score and debt obligation ratios are healthy.

It’s also imperative that clients understand how the equity sharing portion of these loans work. Essentially, the amount provided via the FTHBI is added onto the home as a second mortgage. Your client won’t pay any interest on the loan, and they won’t have to make any payments until the home is sold, or the mortgage matures after its 25-year amortization. However, as the CMHC retains five per cent of the home’s equity, the amount they pay back will reflect how the property has appreciated or depreciated over that time frame.

For example, let’s say they receive a five-per-cent loan of $25,000 through the FTHBI for a home purchase of $500,000. The homeowner sells the home several years later, and its value has increased to $550,000. The homeowner would then need to pay CMHC $27,500 to reflect five per cent of the increased value of the home. However, if the home loses value over that time period, only the original amount of $25,000 would be due to CMHC upon its sale.

It is especially important for home buyers to be aware of this in hot markets where prices are steadily increasing, as their loan payment amount could be significantly larger than what they initially received.

Is your market a good fit?

The bottom line is, if your client is curious about utilizing this new program, be sure to explain whether it’s a good idea based on their home expectations, and what’s available in their local market. It’s also a great idea to steer them to a mortgage professional who can assess whether their borrower profile would make a good fit, or whether they’d be better off taking out a traditional mortgage.

7 COMMENTS

  1. It is another option and he who has more option tend to win. The only other option in real estate that I would consider worse than this is the reverse mortgage. Both this new assistance/incentive and the reverse mortgage are nice options to have, both are likely best kept as a last resort when no other means is available. I do see another bonus with this buyer program. It will likely encourage buyers to move to outer more affordable areas where they can take advantage of this program and spend their day commuting in and out of the city, We can certainly use more urban sprawl.

  2. Essentially you are still contributing to the increase of personal debt for which the government initiated the Mortgage Qualifying Rate. Why don’t we just eliminate the MQR and allow people to own their homes based on what they are actually paying in mortgage payments. More first time home buyers could afford to buy, thus stimulating the economy.

  3. Such an elaborate and complicated plan. Why not just reduce or eliminate CMHC insurance fees for first timers? It would be so simple and effective. But I guess those two words are not in the federal government’s vocabulary.

  4. I agree in general with the comments of reader above. And especially their advice to seek counsel from the trusted members of your home buying team – especially your real estate salesperson, financial adviser and real estate lawyer! That is always a primary necessity. However, assuming that this fund was created for people who might not otherwise be able to afford to buy & own a home with the already existent “other products” on the market (such as utilizing funds from their RSP or TFSA), then it is at least something to be considered. While not defending the structure of this program, it is seemingly well-intended if the outcome is to help Canadians become homeowners that might not be able to afford to otherwise. And, although it does seem like we pay an awful lot of taxes, we seem to also be one of the few remaining countries in the world with a viable, albeit declining, middle class that has not sunken into a dystopic, near-feudal state like our immediate neighbours to the south. If that is because of all of the taxes we pay (and I’m sure with that much bureaucracy there is going to be some bad accounting), then I am all for it. If anything, instead of bemoaning the tax burden we carry individually and collectively, let’s ask for and demand a straight accounting – a forensic audit as it were – of where the money goes and how it’s being spent…followed by a period of correction to any egregious abuses. Notwithstanding that aspect, please don’t throw out the baby with the proverbial bath water. Instead, help this incentive become a better program or replace it with something fairer and better. And always do your due diligence & proceed with caution before entering any contract — especially one with such far-reaching tax and other implications (and with the Government)!

  5. Why on earth would anyone want to allow the government to share in the equity of their principal residence? The taxes we pay already are insane. We not only pay income taxes but we pay taxes on our purchases of our after tax disposable cash and we pay hidden taxes by way of user fees for public services not to mention other taxes hidden from the end user by way of import duties and business taxes that are passed down to the consumer through gross margin markups. We even pay taxes on our income from risk adverse investments that are also paid for by our after income tax paid income. One of the few tax free investments is our principal residence which in this program would have tax ramifications. Why not instead utilize the HBP RRSP Program and the TFSA options available to the home buyer. These options don’t have the future tax implications nor do they have the restrictions that the FTBHI has. We are taxed to death (and then taxed then too) so why not play in the sandbox of legally avoiding taxes wherever possible. Talk to a Real estate Professional for guidance early on in your quest to become a home buyer, even if that means it is just around the corner. We have the knowledge, expertise and the resources for advice at our fingertips and we are eager to share this with our clients. I have had clients meet with me as early as years ahead of their eventual purchase and love being the point of contact to consult with them early on. It is an honor not an inconvenience to utilize my resources. It is in my dna as it is with all us professional real estate agents to help. This is not a program I would ever suggest to my clients without exploring other means of purchase. It would be the very last resort.

    • It’s no more a tax than the CMHC insurance premium is a tax or a bank’s interest rate is a tax.

      Fact is, anyone who’s done the calculation would know that based on the available rate of appreciation using TREB’s Med market value from April 2014 to April 2019 at the time this was announced, as well as mortgage rates at the time, someone using the incentive would have a higher rate of return on their investment than someone who chose to forego CMHC financing at any level.

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