Enhancement to Trudeau's First Time Home Buyer Incentive...game changer?

Mortgagenomics Canada

Since the launch of the program in Sept 2019, only 13% of the programs allocated reserve actually made it to the hands of first time home buyers. Will the upcoming enhancement spur more interested applicants, or is this program simply a dud?

Three words that best describe Trudeau's First Time Home Buyer Incentive (FTHBI) program that was launched back in Sept 2019 - OVERRATED, UNDERUSED, and CONFUSING.

But that could change as early as this coming spring as the programs maximum thresholds have been increased to capture a more broad range of buyers in Canada’s two highest priced markets; Vancouver and Toronto.

In 2019, the FTHBI program was available for properties up to a maximum purchase price of $507,000. However, in 2021, the program will be enhanced to accommodate for a maximum purchase price of ~$722,000.

First, let’s talk about what it's NOT:

• It’s not free money (has to be paid back in 25 years or when you sell, whichever comes first),
• It doesn’t help you buy more house (in fact, you would qualify for slightly more outside of the program),
• It’s not any easier to qualify for than a typical mortgage, and
• It’s not a zero down mortgage (you still need a minimum down payment of 5%)

If it’s none of the above, then what could possibly be so good about it??

Don’t get me wrong…it is good, but it’s not WOW-good…it’s just plain-good. What I mean is that the contribution that the government provides (they will match your down payment up to a maximum of 10%) cannot be used to buy more house (this would be WOW-good), but rather to pay down your mortgage (which is just plain-good). So, if you purchase a $500,000 home…you would still have to qualify for a mortgage on it with a minimum down payment of 5%. Under the program, the government would then match your 5%. So rather than having a mortgage of $475,000, it would be reduced by another $25,000 (the government’s matching contribution) down to $450,000 (with todays interest rates that would amount to a monthly savings of ~$100 per month). The main objective of the program is to reduce the monthly payment of your mortgage (which is just plain-good). It’s not the WOW-good that many had hoped for…that the matched contribution could be used on the buying side.

How do you qualify?

It hasn't yet hit the production press, but expect it to launch in early 2021 - just in time for the spring market.

Here is a summary of the main qualification points:

• the maximum eligible purchase price is determined by multiplying your income (or total household income) by 4.5, but you cannot exceed an annual (combined or individual) income of $150,000. Therefore, the maximum purchase price rounds out to about $722,000 (by the way, with the same $150,000 annual income and qualifying outside of this program, you could qualify for about 10% more (so instead of maxing out at a $722,000 purchase, you could expand your property search up to $800,000…just sayin')
• this is NOT a $0 down program…you still require a minimum down payment of 5%
• the portion that the program matches does not contribute to a bump up in the purchase price, but rather a direct reduction to your mortgage balance
• if/when you sell the property, the government will maintain its equity stake on your property and will be paid out according to its initial investment. For example, if you purchased your property for $500,000 and later sold it for $600,000, the government would be entitled to 5% of $600,000 (a $5,000 return on their initial $25,000 contribution).

Remember, the main objective of the program is to reduce your monthly mortgage payment as a result of the matching contribution from the government being allocated towards the mortgage principle, NOT to be used as a bump up to purchase more house.

For the rest of the miscellaneous fine print qualification details, visit the official FTHBI website at placetocallhome.ca

That’s all I got. Check in next week for more.

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