Understanding the First-Time Home Buyer Incentive (FTHBI) Program

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Thank you to everyone who joined Mortgage Allies for our fourth (can you believe it?) webinar on Tuesday, the 24th of September. It was great welcoming returning webinar watchers to the room! Thank you for your loyal support. We aim to educate and to add value to our mortgage community around information that will ultimately determine their mortgage success. We do our best to be transparent and to make sure that our clients know exactly what they’re getting into when it comes to mortgage decisions.

First Things First

A first-time homeowner is defined differently under the various programs. There are quite a few programs available, but our webinar focused on five programs, and most specifically, the First-Time Home Buyer Incentive (FTHBI) program. A quick disclaimer from Jacques; the webinar presenter and our Mortgage Allies founder & principal broker, is that we’d be speaking and reading for a year’s worth of Sundays if we had to go into all of the program details. With this in mind, we only briefly touched on the five first-time homebuyer programs mentioned in the list below. There is always lots to learn when it comes to making the best mortgage decision, and we are happy to answer any questions you might have after watching the recording or reading this summary.

The five programs available to first-time homebuyers are as follows:

Ontario Land Transfer Tax Refund

Municipal Land Transfer Tax Refund

First-Time Home Buyer’s Tax Credit

Home Buyers’ Plan

First-Time Home Buyer Incentive (FTHBI) Program

To start, we dove right into the Ontario Land Transfer Tax Refund

Under the program, First-Time Home Buyers (FTHBs), may be eligible for a refund of all or part of their provincial land transfer taxes up to $4,000.

Who is a First-Time Home Buyer under this program?

The definition is as follows:

  • The individual must be a Canadian citizen. This program is for permanent residents. It’s also important to note that this program does not apply to foreigners or those operating under a work permit.
  • The purchaser must occupy the home as a principal residence within 9 months of the date of transfer.
  • Only specific residential properties are eligible. A typically eligible home is a semi-detached home, for example.
  • The purchaser or his/her spouse cannot have owned a home or an interest in a home anywhere in the world and the purchaser’s spouse cannot have owned a home or an interest in a home, anywhere in the world while s/he was your spouse. This is extremely important. For example, if you have bought a home in England, you will not be eligible for this rebate.

Benefits:

A benefit is that the first-time homebuyer under this program saves on provincial (Ontario) land transfer taxes.

Who to consult for eligibility and terms & conditions?

You will need to get in touch with the solicitor selected by the purchaser to close their purchase.

Great! You’ve survived the first program’s all-round explanation.

Next, we looked at the Municipal Land Transfer Tax Refund

Some cities, such as Toronto, charge a municipal land transfer tax (MLTT) on properties purchased in the City boundaries. First-time home buyers (FTHB’s) may be eligible for an MLTT rebate of up to $4,475.00. Buying in Toronto can be quite a sum of money!

Who is a First-Time Home Buyer under Toronto’s MLTT program?

  • The purchaser is a Canadian Citizen or permanent resident of Canada or becomes a Canadian citizen or permanent resident within 18 months of the transfer. Let’s say you’re a foreigner for example, and you buy a home as a foreigner, but in the space of 18 months of the closing date, you become a resident, you can then claim that back.
  • The purchaser or his/her spouse cannot have previously owned a home, or had an ownership interest in a home, anywhere in the world, at any time. Your lawyer needs to ask you these questions to make sure you’re on the right track with the correct program.
  • The purchaser must occupy the home as a principal residence no later than 9 months after the date of the conveyance or disposition.

Benefits:

Here, the first-time homebuyer saves on municipal land transfer taxes.

Who to consult for eligibility and terms & conditions?

The solicitor selected by the purchaser to close their purchase.

And then, the First-Time Home Buyer’s Tax Credit

To assist first-time homebuyers with the costs associated with the purchase of a home, the federal government introduced the FTHB Tax Credit. The program represents a $5,000 non-refundable tax credit amount on a qualifying home and provides up to $750 in federal tax relief.

Who is a First-Time Home Buyer under this program?

  • The purchaser did not live in another home owned by the purchaser or their spouse or common-law partner in the year of the acquisition or any of the four preceding years in Canada.
  • The purchaser must intend to occupy the home as a principal residence no later than one year after it has been registered.

Benefits:

The FTHB saves on federal income taxes.

Who to consult for eligibility and terms & conditions?

In this case, you need to chat with your accountant or the person preparing your income taxes.

This a lot of info to absorb, if at any point you are confused or overwhelmed with all of the info, feel free to chat with us. We’d love to help you! Chat with us.

And then, the Home Buyers’ Plan

This is one of the bigger ones! In a nutshell, the Home Buyers’ Plan (HBP) allows First-Time Home Buyers (FTHBs) to withdraw up to $35,000 in a calendar year from their registered retirement savings plans (RRSPs) to buy or build a qualifying home for themselves or a related person with a disability.

Who is a First-Time Home Buyer under this program?

  • The purchaser must be a factual resident of Canada (this means that you may not live in Canada, but you pay your taxes in Canada).
  • The purchaser did not live in another home owned by the purchaser or their spouse or common-law partner in the year of the acquisition or any of the four preceding years in Canada. In other words, you can draw from this plan if you have not lived in the mentioned scenarios.
  • The purchaser must intend to occupy the home as a principal residence within one year after it has been registered.

Benefits:

  • The ability to loan up to $35k from RRSPs, interest and tax-free. Normally, if you draw from RRSPs, you are taxed on that
  • RRSPs must be vested for at least 90 days before the funds can be withdrawn. This is an important point to remember!
  • Allowed up to 15 years to pay the loan back.
  • Minimize mortgage insurance.
  • Payments for the loan are not factored into the borrower’s mortgage qualification calculations.

Disadvantages:

  • Paying the loan will cause the borrower an additional debt load for potentially 15 years.
  • The borrower’s mortgage affordability is worse than indicated by the mortgage qualification calculations.
  • The RRSPs must be vested for at least 90 days.

Who to consult for eligibility and terms & conditions?

Your go-to here is your financial planner or the institution where the RRSPs are invested.

Now, for the one you’ve all been waiting for – the First-Time Home Buyer Incentive (FTHBI) Program:

The First-Time Home Buyer Incentive (FTHBI) program is our brand-spanking-new program that launched on the 2nd of September this year. The program provides FTHB’s with a government, equity participation, interest-free, 2nd mortgage loan. Through this program, the first date a mortgage can close on is the 1st of November. Anything closing before that date is not eligible for the FTHBI program.

Essentially, this program means that the government is giving home-buyers an interest-free loan that they only have to pay back either after 25 years or when they sell their home. This is an equity-share program. What this means is that if your home is worth an amount today, and you took that amount from the government, when you sell – the government will take the amount that it is worth at that specific time. It will be a fair market value of the house. It is a second mortgage – hang on as we discuss this in more detail soon.

There is a benefit here, but there are drawbacks too.

Who is a First-Time Home Buyer under this program?

  • Canadian Status: Canadian citizens, permanent residents and non-permanent residents who are legally authorized to work in Canada.
  • Only specific residential properties are eligible – any “normal” home that you would see in a suburb (without getting too specific) would usually qualify.
  • The individual who has never purchased a home in Canada.
  • The property must be owner-occupied.
  • A person who has gone through marriage or common-law partnership breakdown (even if the other first-time homebuyer requirements are not met). This is a great benefit allowing an individual to purchase their own home.
  • In the last four years did not occupy a home that was occupied by the homeowner or their spouse in Canada.

We understand that this a lot to take in. Re-watching the recording and reading these notes will help you get to grips with the requirements.

Benefits of the FTHBI:

  • The program makes homeownership more accessible for a first-time homebuyer (as defined within this program). Jacques says that in all honesty, not by a lot, and as a first-time home buyer you must at least have 5% of the down-payment in your funds. This is over and above the incentive benefits.
  • The FTHBI also reduces mortgage insurance costs. In Canada, the more of a down-payment you put down, the better your mortgage insurance costs become. If you put 5% down, for example, and the Government, through this program, gives you another 5% – instead of you having to pay 4% insurance, you now only pay 3.1%. This is owing to the zero-interest loan the Government is giving through this program.
  • To emphasize – this is a zero-interest loan from the government.
  • The loan saves monthly mortgage costs. For example, the payment for an equivalent home price without the FTHBI would be higher because the loan from the government is not factored in.
  • To summarise as a benefit – the eventual re-payment of the loan is not factored into the borrowers’ mortgage qualifying calculations.

Disadvantages:

  • Due to the program criteria, the program is ineffective for first-time homebuyers in major urban areas. This is because of the limitations in terms of the salary amounts and total cost of the homes generally associated with those areas. Jacques says that he wishes the threshold was a bit higher as houses are a lot more expensive than one would think – even for those purchasing their first home.
  • This program is an equity share program: thus the loan, plus property appreciation (or minus depreciation) must be paid back to the government over time.
  • Only applicable to first-time homebuyers who can only put forward the minimum down-payment amount.
  • The mortgage must be insured. So, this incentive forces you to have insurance.
  • This is an important one to think about: the FTHBI program could have severe limitations for borrowers who later seek additional emergency financing – they will need a third mortgage since the FTHBI loan will be in the third place. 
  • The program has limited funding for first-time homebuyers. To be specific, the government has allocated $1.25 billion over three years.
  • The property and occupation of the property must meet the government eligibility criteria as outlined. You can use our eligibility determinator and mortgage payment calculator here: FTHBI.CA

Who to consult for eligibility and terms & conditions?

We advise you to make use of our eligibility tool and calculator. For further guidance, chat with your mortgage broker. The final eligibility will be determined by the mortgage insurer.

After the content was covered, the floor was opened to questions. This is kept anonymous to give our viewers the courage to ask any question they might have – without feeling “in the spotlight”.

Mortgage Allies specializes in being transparent in what we do. The financial industry sells rates, and yes the interest rate is important, but Jacques always says to his clients that between one interest rate and another it could be about fifteen bucks a month. By not paying attention to the terms and conditions of the mortgage, you could be costing yourself $40 000 to $50 000 in total and Jacques can prove this to you. It’s so incredibly important to look at the overall mortgage and not just “the sticker price” so to speak. This is what we do – put our clients’ interests above our own to make sure that they’re able to enjoy a healthy mortgage and live their best life. Chat to us – we’d love to help you with your mortgage today.