The Canadian government offers many incentives for citizens, residents, and workers to become homeowners. Some of these programs involve relaxing credit requirements for newcomers to Canada. Others, like the first-time homebuyers incentive, are effectively cash incentives aimed at making homeownership more affordable for all Canadians. The program works by having the Canadian government partner with you on your down payment. For resale builds, the government will agree to put down 5%. That number rises to 10% for new constructions. You still need to put some down payment yourself and meet a few other restrictions. If you’re looking for a home in Ontario, you would be well-advised to read this article and work with your mortgage broker to see if this incentive is right for you!


The First-Time Homebuyers Incentive: Give Me The Details!


The Trudeau government has put this incentive into law to enable more Canadians to own a home. Homeownership is part of the Canadian Dream. With prices rising faster than wages in many parts of the country, this dream has become challenging to achieve. Fortunately, the government recognizes this and is developing programs to address the concerns about affordable housing.


The first-time homebuyers incentive is one of the programs available. Having just launched on September 2, 2019, this option to assist with homeownership is relatively unknown to many outside of the real estate industry. The basic premise is that the government will partner with you on your home. They will put up equity totaling 5% down for resale homes and 10% down for new constructions. In exchange, they will own 5% or 10% of your property, respectively. When it comes time to sell your home, they will take 5% or 10% of the sales price. If prices go up, the government “wins” in the sense that they will receive more money than they put in initially. If you wind up selling your house for less than you paid for it, you “save” money in that you will owe the government less than you initially took.


Since this can be confusing, let’s consider a concrete example. Suppose you purchase a home for $500,000. It’s a new home. You put down 9.99% (more on why this is the amount later), and the government puts down 10%. Let’s consider two hypothetical scenarios. The first one has you selling your home in 5 years at $700,000. What will happen is that you will sell the property and give 10% of the profits ($70,000) to the government and keep 90% ($640,000 ) for yourself. The second hypothetical scenario has the property going down in value to $300,000. You sell the property. $270,000 (90%) goes to you, but now only $30,000 (10%) goes back to the government. These examples are a little simplistic in that they do not include realtor fees or closing costs.


Since the 5 or 10% down payment made by the government is not part of the mortgage, you save quite significantly on your monthly payment while you are living in the home. CMHC (Canada Mortgage and Housing Corporation) provides an example of a buyer saving $228 per month or $2,736 per year on her mortgage [1]. These calculations assume the buyer puts down 5% and CMHC puts down 10%. While $2,736 per year may not be a financial windfall, it certainly does help make homeownership more affordable!

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The Incentive Sounds Promising. How Do I Qualify?


Unfortunately, the program has relatively strict requirements that may exclude many Toronto-area buyers. The most significant restriction is that you can only buy a home with a mortgage plus incentive amount that is four times or less than your yearly income. Additionally, your household income can only be $120,000. If it is higher than that, you are ineligible for the homebuyers incentive. These two restrictions mean that the highest offer you can make is around $565,000. You would need exactly $120,000 in household income, 14.99% down payment, and the government would kick in 5%. Under this scenario, the mortgage plus incentive would equal about $480,000 or 4 times the maximum household income.


As many buyers within the GTA know, there are practically no homes that list for less than $565,000. These restrictions mean that if you are looking for a home in Toronto proper, it will be quite challenging to take advantage of this incentive. If you can search more north, east, or west, there are houses within Ontario that would qualify. Smaller cities like London, Windsor, Barrie, or Whitby do have homes that would be eligible.


It’s also worth noting that “first-time” does not mean that you must never have owned a home before. The government defines a first-time buyer as one who has not occupied their own house within the past four years. Anyone who has experienced the breakdown of a marriage or a common-law relationship also qualifies for this incentive. If you had a home, but sold it and have been renting for the past five years, the government considers you to be a first-time buyer.


You still need a minimum of 5% down. You cannot claim this incentive instead of your down payment. So long as your loan-to-value ratio does not dip below 80.01%, you can put as much down as you would like. On a resale house, that means you can put up to 14.99% down and on a new home that maximum dips to 9.99%.


Finally, you will still need a fairly decent credit score to qualify for this program. The incentive does not relax any credit restrictions so you would need a 680 score or higher to be eligible for the top debt service ratio of 39% [2]. The fact that the government did not find a way to relax credit restrictions is certainly one barrier some people will face trying to qualify for this incentive.


I Think I Qualify. Any Reason I Shouldn’t Take The Money?


At first glance, the program seems to make a lot of financial sense. The government will put up 5% or 10% of your home’s purchase price, which can be thousands of dollars. In exchange, you get a lower mortgage for as long as you live in the home. When it comes time to sell your house (or the mortgage finishes after 25 years), you need to pay back that 5 or 10% of whatever your home is worth. You save thousands on mortgage payments for 25 years, and there is no risk to you. If you were to find a home that qualified, it seems like a no-brainer.


For the most part, the program is quite good. However, there are some potential pitfalls that people may not think about initially.


The first issue is that the government is almost always in a position to benefit from this program. If home prices rise, you have to pay the same percentage of the sales price that you took. If you took 10% down payment in 2019 and sell your home in 2029, you would have to repay 10% of the future sales price. Given the general strength and upward trend of housing prices over the past 30 years, it is unlikely that home prices will be lower 10 or 20 years from now. If you didn’t take the incentive but rather put that money down yourself, you’d get to keep all the equity profits when it came time to sell.


Proponents of the incentive will argue that the government also absorbs losses. If home prices fall 20% and you decide to move out of the house, the government will lose 20% on their portion. While this is technically true, homeowners usually don’t like to sell their properties for a loss. Unless forced to, very few people with mortgages will want to sell their home and lose money. Instead, they’ll ride out the recession until property prices start their upward tick again. The economy goes in cycles, and all homeowners know that.


Therefore, unless you are willing to sell your home at a loss in the future, practically the government will make money off their investment. This money will be made either when you sell your house at a profit or after 25 years when you’re obligated to pay the money back. If the home you bought in 2019 has a lower selling price in 2044, then Canada as a whole probably has a lot of problems. These issues will make your saving seem trivial by comparison!


Another problem is that while the government advertises lower monthly payments, you aren’t saving that much in interest. Taking the money from Ottawa helps your cash flow, but not your balance sheet as much. Consider a $500,000 new construction home. You put down 5%, and the government puts down 10%. With a 5-year fixed term with a 2.87% interest rate, your mortgage payment would be $1,983.05. If you just put the 5% down, your payment would be $2,216.35. By taking advantage of the incentive, you keep an extra $233.30 per month in your pocket. That’s a nice extra sum of money to have!


However, at the end of those five years, you will have paid $56,338 in interest and have $362,355 left to pay if you took the first-time homebuyers incentive. If you didn’t opt-in for it and just did the 5% down, you will have paid $62,966 in interest and have $404,985 left to pay. By taking the incentive, you only saved $1,325 worth of interest each year. If you sell and your home price goes up even by 10%, you’ll have to pay Ottawa $5,000 more than was disbursed initially to you. That is almost as much as the interest you saved over those five years! You will have had a better cash flow but not necessarily come out ahead in terms of interest payments and equity when you do sell your house.

You can find more benefits to being a first time home buyer by vistiing our page here —


I’m Interested In Looking Into This Incentive More. What Should I Do Now?


While there are some drawbacks to the first-time homebuyers incentive, the reality is that it is an option that first-time homeowners should at least consider. Whether you take it or not depends on many factors, including how long you intend to stay in the house and what other mortgage options you have.


A mortgage broker is the best person with whom to discuss these options and find out the best solution for your needs. They can help you review your financial situation and determine if this incentive is the best one for you to take. Your broker may also be able to inform you that you would be better off with some other program. Mortgage brokers know the industry inside and out. At Citadel Mortgages, we can help you find the right mortgage for your needs.


The first time homebuyers incentive is a great starter initiative by the Trudeau government to make homeownership more affordable. For people looking at lower-priced homes with a household income that is less than $120,000, the program is worth considering. Especially for new construction homes, it provides an excellent reduction in monthly payments. You can save a couple hundred or so a month just by taking “free” money from Ottawa. While it is true that you have to repay that money eventually, if you live in your home for the long-term, you won’t have to give the money back for 25 years. That’s a long time to enjoy a reduced monthly payment before you even need to worry about repayment. Of course, if you don’t have the 5 or 10% down at the end of 25 years, you could certainly take out a line of credit against your property to pay it off. CMHC also says that they will work with buyers on a case-by-case basis to ensure homeowners can repay the funds in a way that doesn’t cause undue stress.


While it certainly doesn’t address the housing crisis in Toronto and Vancouver proper, it does help homeowners afford properties that are close to the GTA. Homes in London, Whitby, Barrie, and other smaller cities close to Toronto qualify for this incentive. Discuss this incentive with your mortgage broker and your real estate agent. It may make solid financial sense for you to claim it!

By using a mortgage agent or mortgage broker from Citadel Mortgages, you will be able to ask all the questions you have and be ensured you get the best advice and mortgage product for your mortgage needs. Contact us here at Citadel Mortgages to become mortgage-free sooner!


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First Time Home Buyer Programs in Ontario


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