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A Simple Overview of the New CMHC First-Time Home Buyer Down Payment Incentive

Jesse Abrams - September 3, 2019, 1:55 pm

What is the down payment incentive?

The First-Time Home Buyer Incentive or FTHBI went live on September 2nd, 2019. The goal of the program is to help with affordability for Canadians buying your first home. It is done with a “shared equity program” where the CMHC (a government body) will provide 5% or 10% toward a new home buyer's down payment.

By putting down extra money toward your down payment, it can help to lower monthly mortgage payments, while potentially enabling home buyers buying a property below ~$500,000 to better afford a home.

   

Do you get 5% or 10%?

For home buyers that purchase a home that already exists (i.e. resale), a FTHBI of 5% will be available for those eligible. For the purchase of a newly constructed property, a FTHBI of up to 10% will be available for eligible first-time home buyers. 

   

Is it free?

There are no up front $ costs for the program, however, it is definitely not free. Think of it as if the government is making a shared investment in your home.  Home buyers who utilize this program must pay back the CMHC either 25 years after their purchase or once the home sells.

As an example, if a home buyer takes a 5% incentive, this means that the CMHC will own 5% of their home. So, whenever there is a liquidation event (sale of home or early payout), the CMHC will get 5% of the total returns. This means that if your home goes up in value (even if you spent money to renovate it), they will benefit.

    

Who can use the program?

The program is not for everyone, to qualify, you must:

  • Home buyers must have at least a 5% down payment for an insured mortgage.
  • Have at least one applicant that is a first-time home buyer. This means they have not owned, or dwelled in a home that was owned by their spouse within the last 4 years. Exceptions made for divorce, etc.
  • The combined household income of the buyers cannot exceed $120,000. This also includes income from co-signers and any rental income.
  • The mortgage + the FTHBI cannot be more than 4x total income (Mortgage-to-Income Ratio).
    • If household income is maxed at $120,000, theoretically the max. purchase price would be roughly $560,000.  
  • The home buyer(s) must be a Canadian Citizen, Permanent Resident or Non-Permanent Resident who is legally authorized to work in Canada.
  • The property must be located in Canada and be occupied by the homeowner (no rentals). 

    

Overview of potential savings

The Canadian government estimates that for a $500,000 home the FTHBI could save buyers as much as $286 per month, or more than $3,430 annually.

While the CMHC will have a piece of home buyers using this program’s profits, in the short term, it definitely helps with home affordability. The CMHC created this chart below to explain the potential savings both monthly and annually.

 

Without FBHBI

With FBHBI

Without FBHBI

With FBHBI

Without FBHBI

With FBHBI

House Price

$200,000

$200,000

$350,000

$350,000

$500,000

$500,000

Down Payment (5%)

$10,000

$10,000

$17,500

$17,500

$25,000

$25,000

FTHBI (10%)

NA

$20,000

NA

$35,000

NA

$50,000

Insured Mortgage

$190,000

$170,000

$332,500

$297,500

$475,000

$425,000

Insured Insurance Premium

$197,600

$174,760

$345,800

$305,830

$494,000

$436,900

Monthly Payment*

$989

$875

$1,731

$1,531

$2,473

$2,187

Savings on Monthly Payment

$114

$200

$286

Savings on Yearly Payment

$1,372

$2401

$3,430

     

How to get started 

Our Homewise team would love to help you with the program. Easily apply for a mortgage through our simple online application in only 5-minutes. Then, one of our Advisors can guide you through the process. Apply today

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