First Time Homebuyers Incentive (FTHBI) Should Be Used As A Last Resort

Here’s why the first time homebuyers incentive should be used with caution:

1. In the first time homebuyers incentive, the Government owns an equity stake in your home. When the value goes up, so does the repayment amount on this “interest-free” loan.
2. The borrower will need to pay for an appraisal to establish the home’s current market value at the time of repayment.
3. The amount that is repaid is a moving target because the home is generally constantly appreciating over time.
4. The Government requires the borrower to pay back the loan in one lump sum.

Everyone is talking about the “First Time Homebuyer Incentive (FTHBI) Program ”

It’s an interest-free loan of 5-10% of the purchase price given to qualifying first time homebuyers that is meant to supplement their down payment. Why would first time homebuyers want to supplement their down payment? To help them pass the Government stress test. Yes – you read that correctly. The Government introduced a stress that is preventing many first time homebuyers from qualifying for a mortgage. Then they introduced an interest-free loan to help them pass the test that was created by them…

Aside from how illogical that sounds, here is why I try to find other ways of qualifying my clients:

Let’s say a first time homebuyer’s purchasing a home for $100K (to keep the numbers easy). I’ve saved up $5K and I take the Government up on their offer of a 5% interest free loan. So I accept $5K from them and I purchase the home with 10% down (5% from me and 5% from the Government).

Fast forward 5 years.

I believe the home is worth about $200K at this point. That means I owe the Government $10K because they own a 5% stake in my home right? This “interest-free” loan has just cost me an additional $5K (or $1000/yr). That’s 20% interest in this scenario. But it’s just one scenario…

It gets worse.

After 5 years I have worked hard to save up $10K. I’m ready to pay them back. Not so fast! I need to pay for an appraisal first. There’s $400. The appraiser believes that my home is worth $250K. That means I owe the Government $12,500, not $10K. So you’ll pay the Government what you have ($10K) and pay them the rest later right? Wrong! You need to pay them the full amount in one lump sum. That means you need to go back and start saving again and guess what? If it takes you more than 30 days to save up the additional $2500, you need another appraisal. In other words, you are chasing a moving target.

The First Time Home Buyer Incentive Program is not all it’s cracked up to be!

It MAY get you into a house, but it’s unlikely. If you don’t qualify with 5% down, it is unlikely that you will qualify with 10% down. And also, consider the cost! There are other cheaper ways of getting a mortgage. Ask me how!

Sean Howard is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Sean, he can be reached at 905-574-9200 #216. Alternatively, you can contact Sean here.

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