First-Time Home Buyer Incentive Ottawa: Is It Worth It? 

A 2023 Buyers’ Guide On When and How to Avail This Incentive

Did you know that 67% of Canadians have given up on ever owning a home due to higher prices? A majority of these Canadians are first-time homebuyers. Purchasing your first home without financial assistance could be daunting, to say the least. The Federal Government’s First Time Home Buyer Incentive Program can help. The program can be very beneficial, but limited awareness has prevented many eager buyers from taking full advantage of it. 

Our team of real estate experts looked into this matter, dug into the information, and created a complete guide for first-time home buyers about how and when to utilize this incentive. We have highlighted the whole process, eligibility criteria, how to pay back, benefits, and pitfalls. 

Table of Contents

What is the First Time Home Buyer Incentive (FTHBI)?

It is a shared-equity mortgage that makes it affordable to purchase a home. The monthly mortgage payments are lowered without increasing the amount the home owners need to save for a down payment. The Government of Canada finances a portion of the homes of eligible Canadian home buyers through shared equity mortgages. The program is administered by Canada Mortgage and Housing Corporation (CMHC).

Who Is The First-Time Home Buyer?

As this incentive targets a particular population group, let us understand who is a typical first-time home buyer in Canada:

  1. The average age of a first-time home buyer is 36 years. 
  2. He is likely to be newly married. The average age for a Canadian couple to get married is 35.3 years. 
  3. He is likely to spend $500,000 to buy a home in Ontario. 
  4. He is likely to be earning $65,800. It is the average salary of a 35 to 44-year-old Canadian but it varies according to the job and qualification.
  5. He is likely to be using gifted money to make a downpayment. Around 30% of the home buyers use gifted money to buy their first home. 

What is Shared Equity Mortgage? How Is It Different From a Mortgage Loan?

The shared equity mortgage means that a part of your first home will be financed by the Canada Mortgage and Housing Corporation (CMHC). The federal government will lend you a certain amount according to your home’s purchase price. This will reduce the amount of your monthly and yearly home installments without increasing the amount of your down payment. You must occupy a home if you have applied for a shared equity loan. 

A shared equity mortgage is different from a mortgage loan. This is how a traditional mortgage loan works:  

  1. The buyer contributes a 20% down payment. The down payment is a lump-sum amount paid upfront. 
  2. The bank (or lender) contributes the remaining amount. 
  3. The buyer pays the loan plus interest back to the bank. It is done in monthly installments over the years. 

 

This is how the shared equity mortgage works:   

  1. The buyer contributes half of the down payment. (10%) 
  2. The shared equity mortgage lender covers the other half of the down payment. (10%) 
  3. The bank pays the mortgage loan (80%)
  4. The buyer pays the mortgage loan back to the bank in monthly installments. 
  5. The buyer acquires the home and sells it or refinances it at some point. He returns the original loan (10% of the down payment)+ 10% of the appreciation to the shared equity lender. 

Let us explain this with an example. Suppose Ben (a hypothetical character) wants to buy his first home in Ottawa. The price of the home is $200,000 and Ben has to pay 20% in down payment. If he avails the First Time Home Buyer Incentive, this is how his finances will look like: 

 

Original Home Purchase ($200,000)

Future Home Sale ($300,000)

Home value

$200,000

$300,000 ($100,000 is appreciated)

Ben 

$20,000 (10%)

$110,000 

($300,000 sale amount – $30,000 paid to shared equity lender – $160,000 principal loan)

Shared equity lender 

$20,000 contribution (10%)

$20,000 principal loan + $10,000 (10% of appreciation) = $30,000 total payment

Mortgage lender

$160,000

$160,000 + interest 

 

Ben can benefit from this incentive in another way. He can lower his monthly installments by paying a higher down payment. Let us consider a scenario in which Ben has around 5% of the total cost to pay as a down payment. A lower down payment means a high monthly mortgage payment.  

Home Cost: $200,000
Ben’s savings: $10,000 
FTHBI: $20,000
Down payment: $30,000
Total Mortgage Loan: $170,000
A monthly mortgage with 25 years
amortization: $114

In this scenario, the higher down payment helps him avail lower mortgage default insurance premium. Home buying is now much more affordable for Ben. 

  1. He has to pay lesser down payment.
  2. He doesn’t have to pay a fixed interest rate to the equity lender. It will be 10% of appreciation. 
  3. He has to pay that loan back to the equity lender only when he is selling the home or refinancing it.   
  4. He has to pay a lesser cost in monthly installments. 
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The Benefits Of The First Time Home Buyer Incentive? (FTHBI)

1. Affordability

The purpose of home buyer incentives is simple: make home-buying more affordable and convenient for first-time buyers. Although house prices softened during the last year, an Ipsos survey confirmed that house ownership is an unattainable dream for many Canadians. Similarly, another survey by Leger proves that affordability is a major hurdle in the way of many Canadians. This incentive makes home-buying more affordable for Canadians. 

2. Less Risky

Besides the high cost of the property, fluctuating and unreliable state of the real estate market is another hurdle in the way of home ownership. Many home buyers fear their investment in case the market crashes. This incentive helps such home buyers. The equity lender shares the profit and loss. Depending on the rate of appreciation, the equity lender gets the profit and the buyer doesn’t have to pay a fixed interest rate.

3. Lower Mortgage Payment

A larger down payment means you are a less risky borrower. This translates into paying a lower monthly mortgage. You can save money every month and deal with any health or financial crisis without fearing a default. 

4. Interest-Free Borrowing

There is 0% interest in FTHBI, unlike the other loans where you have to return the loan with interest on it. Interest-free loans like FTHBI don’t even add pressure on the monthly finances.   

5. Prepayment Facility

First Time Home Buyer Incentive also gives you the option of prepayment. If you want to pay back the loan even before 25 years without any prepayment charges. This prepayment facility of the incentive gives you the chance to exit the program.

Eligibility Criteria For FTHBI in Ottawa

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1. Canadian Citizen/ Permanent Resident

You can avail of the first-time home buyer incentive only if you are one of the following:

  • A Canadian citizen
  • A permanent resident 
  • A non-permanent resident having a work visa 

2. First Time Buyer

You have to be a first-time buyer. If there are two buyers, one of them must be a first-time home buyer to avail of the incentive. 

3. Annual Income of the Buyers

The annual income of the buyer should be less than $120,000.

4. Percentage of the Down Payment

First-time home buyers should have at least a 5% down payment for an insured mortgage. 

5. Qualifying Income

A participant’s insured mortgage and the incentive amount cannot be greater than four times the participant’s qualified annual income. For example, if the qualifying income of a person is $100,000 annually, then the amount of the mortgage and the incentive must not be more than $400,000.

Does Your House Qualify For FTHBI in Ottawa?

If your home fulfills the criteria below, it can qualify for FTHBI. 

  • Single-family homes
  • Semi-detached homes
  • Duplex, triplex, and fourplex
  • Townhouses
  • Condominium units
  • Mobile/manufactured home
  • You can also have a four-unit home located in Ottawa. It should be owner-occupied for year-round occupancy.
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Nick Labrosse
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Take the Stress Out of Homebuying
Labrosse Real Estate has a 7-step process to help you find the right location, size, condition and modern home features based on YOUR budget.

Percentage Of the Incentive

The percentage of incentive for a First-Time Home Buyer is either 5% or 10%. It depends on a few factors which include the type of property or home you are purchasing. The table below shows the percentage of incentives received by the first buyers according to the type of property.

Type of PropertyPercentage of Incentive
New Construction5% or 10 %
Re-Sale Home5%
Mobile Manufactured Home (new and resale)5%

Paying Back the Loan

  • Buyers are supposed to repay the incentive to the government of Canada when they sell the house or after 25 years, whichever comes first.
  •  You are supposed to repay the percentage of appreciation and the market value of your home instead of the dollar amount borrowed.
  • If the buyer receives any big chunk of money in the form of salary raise, an inheritance or a lottery win, the buyer can always pay back the full incentive even before time. There is no prepayment penalty involved in this process.
  • This percentage is calculated based on the home’s market value at the time of sale or after 25 years.
  • It must always be kept in mind that the government of Canada benefits from an increase in the house equity which means if the value of the home has increased you will have to pay back more to the government than you borrowed. The government suffers a loss if the house equity goes down. This means that if the value of the house has decreased you will pay back less than the amount you borrowed.
  • If home buyers pay back the loan early, they don’t have to pay any prepayment fees. The buyers pay back the incentive directly to the Canada Mortgage and Housing Corporation rather than the Mortgage lender.

Pitfalls

  • Many people believe this incentive robs the buyers of their wealth. Imagine a person who bought an average house, kept it for 25 years and renovated it by spending his savings. This increased the home value. When he sells the house, he will have to pay back the percentage of the increased share. Regardless of the fact that he himself invested in the house to increase its overall worth, the lender shares the higher percentage.  
  • If you don’t wish to sell your home, you constantly need to make some savings over a period of 25 years for the repayment. Otherwise, after 25 years of owning a home, when you are close to retirement, it becomes very difficult for you to give the due share to the government of Canada.
  • There is a problem for all those people who sell their homes before the 25-year time period. Although they manage to repay the incentive at that time, the expenses such as percentage of equity, legal fees, land transfer taxes and realtor’s commission are overwhelming. 
  • The home buyers must be aware of some other expenses associated with the administration of the First Time Home Buyer’s Incentive. These include extra legalities, appraisal and mortgage refinancing fees.

Conclusion

The First-Time Home Buyer Incentive helps qualified first-time home buyers reduce their monthly mortgage rate without adding to their financial burdens. If you are eligible for the First Home Buyer Incentive and qualify for it as well then buying a home would be affordable beyond thinking. This incentive is great for Canadians as it lowers their mortgage payments without increasing the down payment. The other good thing about this incentive is that the buyers are not supposed to pay any interest. The amount which needs to be paid back directly fluctuates with the value of the home. Contact one of the several reliable mortgage brokers in Ottawa for a quick consultation.  

Are you looking forward to buying your new home? Do you want a place to call home? Connect with an expert realtor to find the best home. 

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FAQS

Couples can always avail of the home buyer incentive if one of them is the first buyer regardless of the fact that the other partner is already a homeowner. They can still withdraw the amount of the incentive as long as they have not lived in the house owned by the other partner in the past four years. The first time home buyers also need to pay first-time home buyer’s tax credit (HBTC), which is part of Canada’s Economic Action Plan

The minimum credit score which is important for a house in Canada is 680. This score further depends and varies on the lender and according to the type of mortgage. It is always better to keep your credit score high, although some lenders try to keep it on the lower side. The optimal score when applying for a mortgage is 700 and above. 

In 2023 Canada started its First Home Buyers Saving Program. In this program, all first-time home buyers under 40 can have a new savings account in which they can contribute up to $8,000 annually. This account is also tax-deductible just like a RRSP account. 

Yes. If the payments are not made, co-signing a mortgage affects the credit score. As the credit reports of both parties are linked to the mortgage. This also signifies that if you or the primary owner make timely payments the credit score would further improve.   

The Government of Canada has implemented new laws and rules related to property in Canada. These Acts help make homes more affordable for people living in Canada. Non-Canadians are not allowed to purchase any kind of residential property in Canada for two years according to the prohibition on the purchase of residential property by the non-Canadians Act. 

In case of a divorce in Canada, both spouses have a 50% right on the marital property. Judges try to make the equal distribution of the property as sometimes it is not 50/50. The divorce attorney of the client also helps you in retaining the value of your property.

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