Examining the First-Time Homebuyers Incentive

The Government of Canada has recently released information on its new homebuyers incentive program. This program aims to help first-time homebuyers who may be struggling to afford the home that they’ve always wanted. The government is offering an interest-free loan to help homebuyers take out smaller mortgages to keep monthly payments lower. The only small catch is that if the home appreciates in value, the government will also gain a share of the revenue on the home. However, if the home loses value, the government will shoulder a portion of the loss.

The aim of this incentive program is to help reduce monthly payments up to $286/month for about 100,000 families Canada-wide.

So, how does someone apply for this program? In order to be eligible, you must meet only two requirements:

  • Have an annual income of $120,000 or less.
  • Be a first-time home buyer.

To be considered a first time home buyer is a little more complicated that one might think. You cannot have ever owned a home, and you cannot have lived in a home owned by a spouse or common-law partner in the four years prior to applying for this incentive.

The next step is to come up with a down payment of at least 5 per cent of the property value but no more than 20 per cent. This incentive is only for mortgages greater than 80 per cent of the home value. You will also be capped at what you can spend; the incentive is only good for homes that are four times your income plus the incentive. So, if you make $60,000 a year and have $12,000 for a down payment, the most you would be able to spend on a home is

$264,000. This number takes into account your down payment and the 5 per cent incentive. With this incentive program, you would see yourself saving over $100/month.

Some experts see this incentive as potentially harmful to home buyers. If you take the full run of the mortgage with your house appreciating in value at roughly 3 per cent per year, you could see yourself having to pay back more than you borrowed from the government. A mortgage broker from Toronto said, “I can’t think of a single buyer for whom this offer would be attractive…A prudent buyer would not take this deal.”Other experts say this is money that a home buyer would not really notice to be missing because it’s coming off the sale price of the home, it’s not being paid out of pocket.

If you’re a first-time home buyer, this program is definitely worth looking into, whether you decide to apply for it or not. It would allow you to jump into the housing market with financial support but still have a safety net in case things go south in your neighbourhood – something to think about for all your first-time homebuyers out there.

 

 

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