Recently, the Government of Canada has launched a program, designed to help first time home buyers get into the real estate market. The purpose of the First Time Home Buyer Incentive Program (FTHBI) is to help Canadians who have the minimum down payment for an insured mortgage to increase this amount with help through a government subsidy.
Shared equity financing means that the government will participate in the appreciation of the house, and lose in the depreciation of the house, equal to the percentage amount they contribute towards the house. Essentially, they become part owners of your home.
This program may be an attractive option to some, because it effectively reduces your monthly mortgage payment.
Under this incentive program, first time home buyers are eligible for:
5% for a first-time home buyer’s purchase of a re-sale home
5% for a first-time home buyer’s purchase of a new or re-sale mobile/manufactured home
5% or 10% for a first-time home buyer’s purchase of a new construction
While this incentive will help many Canadians purchase their first homes, it does include some limitations:
In order to enroll in this program, your mortgage must be insured, meaning that your down payment cannot exceed 20%
The incentive must be repaid at the earlier of 25 years from the purchase date, or the sale of the home
The incentive is classified as a second mortgage
This incentive is non-interest bearing, with no regular principal payment and is repayable in full at any time.
What do we think?
The first time home buyer’s incentive program can provide great benefit to those looking to buy their first home, but can’t borrow the full amount they need from traditional lenders. This program will turn some of those people who are unable to get into the real estate market, into homeowners. We love to see the government actively helping Canadians with the increasing affordability problem in the real estate market, and we support the initiative.
The equity financing portion will reduce your gain when your house appreciates, however, so although it does help get first time home buyers into the housing market, it does limit the upside. While it is helpful to some Canadians, we still think that it’s a better idea, if possible, to purchase your first home without the assistance of the Buyer Incentive Program.