In the 2019 budget, the federal government announced the First Time Home Buyer’s Incentive (FTHBI) program, which is scheduled to be rolled out on September 2nd, 2019. It’s a program that’s much more complicated than anticipated, and it’s questionable as to whether the benefits offered by the program genuinely address the need to help Canadians, particularly first time homebuyers, access housing affordably.
We don’t fully know how the program will work, so far, but we do know some things. The first key point is:
The First Time Home Buyer’s Incentive will NOT provide you, or loan you, your initial required 5% down payment, as programs run by some provincial governments have.
What DO we know?
The gist is that you have to have your down payment per normal, but that they’ll add an extra 5% to it (or an extra 10% on new construction), for which they then register a mortgage charge in “second position” behind your main mortgage.
Essentially, it means that instead of a normal situation where (not quite, but for illustrational simplicity) you own 5% of the house initially and the bank owns 95%, on which you make payments, under this program you’d still own the 5%, and CMHC would own 5%, and then the bank would own 90% on which you’d make payments. Basically, it’s 5% less on which you calculate your mortgage payments.
What DON’T we know?
If later down the road you want to sell your home, refinance the mortgage, or even renew and switch to a different lender, we’re not sure what’s going to happen. When or under what conditions does this CMHC “second mortgage” have to be repaid, and would the repayment include appreciation, or just the original amount? And what happens if you renovate the house and it’s now worth more because of that? Or what if the house depreciates in value?
Overall, the FTHBI is much less exciting an offer than we’d hoped in the original announcement. The program, as laid out, doesn’t necessarily make a great difference in terms of helping first time homebuyers qualify to get into housing.
It would have been MUCH simpler and easier for the federal government to re-introduce 30 year amortizations, allowing CMHC to insure purchases for first-time homebuyers over a longer term, stretching out cost and increasingly affordability. This would require no additional legal work or confusion, and would’ve actually had a larger effect on qualifying – while still meaning Canadians don’t have an additional third party who now owns part of their home.