What to know about repaying the incentive
If you meet the eligibility criteria, you can apply for the incentive, which comes in the form of a shared equity mortgage with the Government of Canada. It’s called a shared equity mortgage because the government shares in any gains or losses on the home’s equity. More on this below.
The government will loan buyers 5% of the purchase price for a resale home, or 10% for a new one. That works out to a possible $25,000 on a $500,000 resale property, or $50,000 on a new $500,000 home. That could save you a little bit on your mortgage payment and monthly insurance premium—somewhere around $100 to $300 per month, according to the federal government’s calculations.
Buyers aren’t charged interest on the loan, and they don’t have to make ongoing payments. But they do have to repay the incentive, either when they sell the house, or after 25 years—whichever comes sooner.
It’s important to note that the repayment is not based on the dollar amount borrowed. Instead, borrowers must repay the same 5% or 10% share that they received through the FTHBI, but calculated as a percentage of the home’s fair market value at the time of sale, or at the 25-year mark. That’s because, as mentioned above, the government benefits from any increase in equity of the home and loses out if equity goes down. In other words, if the home has increased in value, you will need to pay back more than you borrowed; if the home has decreased in value, you’ll pay back less than you borrowed.
So, while you’re not paying interest, there is a cost to using the incentive.
More changes to the First-Time Home Buyer Incentive
In June 2022, the CMHC altered the rules for repaying the incentive, capping the government’s potential gains and losses to 8% per year, with the goal to “better support first-time home buyers.” The modified rules limit the government’s share in the appreciation and depreciation of a participating home’s value.
The organization said that, in the case of appreciation, the repayment calculation is retroactive to the day the program first came into effect (Sept. 2, 2022). In the case of depreciation, the new repayment calculation applies only to home buyers who signed their shared equity mortgage with the government on or after June 1, 2022.
What does that mean in real terms?
Assuming that Canadian housing prices increase to the same degree over the next 25 years as they did in the previous 25 (that’s around 370%, since the average home in 1996 was worth $150,899), your $500,000 home in 2022 could be worth $2,350,000 million in 2047.