The First-Time Home Buyer Incentive

Canada’s First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive was a shared-equity program that helped reduce upfront costs. The FTHBI is no longer available to new applicants.

The First-Time Home Buyer Incentive (FTHBI) was a shared equity program that allowed eligible applicants to borrow 5% or 10% of a home’s purchase price from the federal government to assist with providing a down payment. The FTHBI was a unique arrangement, and a fairly unpopular one.

The FTHBI was discontinued in March 2024 after providing around $285 million in funding for 23,000 home buyers, far short of its goals of $1.25 billion and 100,000 people.

Since Canadians can no longer participate in the FTHBI, most of the following information is for historical/reference purposes only.

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Alternatives to the First-Time Home Buyer Incentive

If increasing your down payment is the goal, you may want to consider the Home Buyers’ Plan, which allows you to put your RRSP savings toward a home purchase without triggering any early withdrawal penalties. And while it’s not a program per se, a First Home Savings Account can also help you grow your down payment savings more rapidly.

There may be grants and incentives available for first-time home buyers at the provincial and municipal level. These programs can be especially helpful if you plan on buying your first home in expensive real estate markets like Ontario and British Columbia.

Some provinces also offer “green home” grants, which can save homeowners money when they invest in making their homes more energy efficient. There’s also the First-Time Home Buyers’ Tax Credit, which can knock up to $1,500 off your tax bill.

How the First-Time Home Buyer Incentive worked

Home buyers who qualifed for a FTHBI loan received one of the following:

5% of the purchase price of an existing home.
5% or 10% of the purchase price for a new construction home.
5% of the purchase price for a new or resold manufactured or mobile home.

FTHBI loans were interest-free and expected to be repaid in full, either within 25 years or when the house was sold. Because the FTHBI was a “shared equity” agreement, borrowers would also owe a percentage of any increase in the home’s value.

At first glance, the FTHBI seemed like an opportunity for first-timers to get some much needed help. By using government funds, borrowers would have more equity at the outset of their mortgage, decrease the amount they had to borrow and have a better shot at providing a minimum down payment or better.

But the complexity of the repayment terms, as well as some restrictive eligibility requirements, were probably sticking points for many borrowers who were otherwise interested in the program.

Paying back a First-Time Home Buyer Incentive loan

Borrowing 5% or 10% of a home’s price from the government meant it was entitled to a similar share of that home’s rise in value. The more a home appreciated, the more the homeowner was required to pay back.

If a home increased in value, the FTHBI repayment amount had two components:

The original loan amount.
The original loan percentage (either 5% or 10%) applied to the rise in value of the home.

There was a cap on how much a person paid on the appreciation, equal to the original loan amount plus 8% per year (non compounding). If a home lost value, the original loan percentage would be applied to the amount of depreciation and subtracted from the original loan amount.

Let’s say you purchased a $600,000 home using a 5% FTHBI loan worth $30,000. In 10 years, you sold it for $1,000,000. Your repayment amount would have looked like this:

Your original loan amount was $30,000.
The home’s value appreciated by $400,000. Five percent of that is $20,000. This falls below a cap of $24,000 ($30,000 * 8% * 10 years).
Your repayment amount would be the sum of the two amounts, so $50,000.

Not only is the math a little complicated, but in this case, you’d be paying back $20,000 more than you originally borrowed.

Eligibility requirements

This is where the FTHBI may have really missed the mark. Approvals were dependent on two low thresholds:

Home price. In most parts of the country, the mortgage amount couldn’t be more than four times a person’s qualifying income. In Toronto, Vancouver, and Victoria, the limit was 4.5 times.
Income. Total household income couldn’t exceed $120,000 in most cities. The cutoff in Toronto, Vancouver, and Victoria was $150,000.

If your household earned more than $120,000 in all but three cities, you couldn’t use the FTHBI. In those communities, the maximum eligible home price would have been $480,000. That wouldn’t get you very far in provinces like B.C. and Ontario.

The maximum home price In Toronto, Vancouver, and Victoria, would have been $675,000, well below those cities’ average home values.

Pros and cons of the First-Time Home Buyer Incentive

Pros

Actually buying a home. By lowering the cost of your mortgage, the FTHBI aimed to get people into homes when no other program could.
Building wealth. Sure, people might have had to pay back more than they borrowed, but they could still accumulate serious equity in the meantime. If a property doubled in value, a person might have to pay back twice what they borrowed, but those tens of thousands of dollars would be repaid out of hundreds of thousands of dollars in profit.
Interest-free borrowing. At 0% interest, a FTHBI loan wouldn’t put any added pressure on a borrower’s monthly finances.
No penalties. Homeowners could pay back the loan in full at any time before the 25-year window closed, giving them an opportunity to exit the program before a house has time to appreciate at too torrid a pace.

Cons

Limitations. The income and home valuation limits were too low to help many buyers find housing that met their needs.
The big payback. The shared equity component of the FTHBI program could result in paying back the government considerably more than what was originally borrowed.
Appraisal costs. If a borrower decided to exit the program before selling their home, they’d have to pay for a professional appraisal to determine its current market value.

The FTHB Incentive was a shared equity loan program through which home buyers could borrow up to 10% of the price of a property from the federal government to bolster their down payment.

The FTHBI was most useful for households earning moderate incomes in less expensive housing markets. In most cities, a household’s combined income couldn’t exceed $120,000, while eligible properties couldn’t be worth more than four times household income.

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Canada’s First-Time Home Buyer Incentive

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