Should Canadian home buyers consider using the FTHBI?

The First-Time Home Buyer’s Incentive is the latest measure from the federal government to ease the cost of homeownership in Canada. But, now that the program will finally be in force as of Labour Day, will it actually have a positive impact for first-time home buyers?

First announced back in March in the last federal budget, the FTHBI has been the point of some debate, both for how the program is structured, and for some of the restrictions it places on home buyers who may wish to use it.

Who can use the FTHBI?

Here’s how it works: eligible first-time buyers (meaning at least one buyer in the household has not owned property, or dwelled in a home owned by their spouse in the last four years) can apply to receive a cash infusion from the Canada Mortgage and Housing Corporation to boost the size of their home purchase down payment. The amount provided will be 5% for resale homes, and either 5% or 10% for new builds. The funds are registered on the title of the home in the form of a second, interest-free mortgage; the homeowner needs to pay it back only when the home is sold or the 25-year mortgage matures, whichever comes first. 

The CMHC retains part of your home’s value

However, in exchange for this interest-free loan, the CMHC retains a 5% chunk of your home’s value – and this is the amount that must be paid back when the loan is due. According to the federal government’s FTHBI website, “If a homebuyer receives a 5% Incentive, the homebuyer will repay 5% of the home’s value at repayment.” 

That means, if your home has appreciated or depreciated in value over time, the size of your loan payback will grow or decrease by the same percentage. 

For example, let’s say a home buyer receives a 5% loan of $25,000 through the FTHBI for a home purchase of $500,000. The homeowner sells the home several years later, and its value has increased to $550,000. The homeowner would then need to pay the CMHC back $27,500 to reflect 5% of the increased value of the home.

Housing analysts have questioned whether this equity share is really worth the potential expense for homeowners, especially those in markets where home prices may be heating steadily, such as in the City of Toronto.

Eligible homes are limited

The other point of contention regarding the FTHBI is that, based on its income and mortgage-to-income (MTI) ratio requirements, buyers are limited to a home purchase price that is too low to have much traction in the nation’s largest markets.

Under the FTHBI’s criteria, home buyers cannot have a combined household income of more than $120,000, and the mortgage they take out cannot have an MTI of more than four times their income amount.

Assuming a home buyer has the maximum $120,000 income and is making a 5% down payment, that works out to a maximum purchase price of $505,000.

FTHBI can’t really be used in the biggest markets: study

Not surprisingly, according to a recent study by Zoocasa of 25 major markets across Canada, that renders the FTHBI less than effective in six of the nation’s priciest markets, including Vancouver and Toronto real estate listings, where the average home prices were $967,314 and $806,755 in July, respectively. While this is based on average home prices, given the average condo price also tops the $600k-mark in both cities, buyers will be challenged to find housing stock that falls within the eligible price threshold.

However, there is some good news for prospective buyers outside of Canada’s largest cities; the numbers reveal that the FTHBI could actually be feasible in 19 of 25 markets, based on average home price.

Check out which cities fall within the FTHBI’s price eligibility in the infographic below:


Penelope Graham is the managing editor at Zoocasa, a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings for markets across Canada, including Toronto, Mississauga, and Hamilton real estate, at zoocasa.com or download our free iOS app.