Canada's first-time home buyer incentive program has been discontinued
Canada’s housing agency has announced that it is ending the first-time home buyer incentive program.
In a notice on its website, the Canada Mortgage and Housing Corporation (CMHC) says the incentive “has been discontinued” and that the deadline for new or updated submissions is midnight EST on March 21, 2024.
The first-time home buyer incentive program was first introduced in 2019. It allowed qualified first-time home buyers to purchase their first home with a reduced monthly mortgage payment, starting on September 2, 2019, with the first closing on November 1, 2019.
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Buyers could receive an interest-free loan of up to 5% on an already-built home and up to 10% for a newly constructed home, with the doubling of the incentive for purchasers of new homes designed to encourage new supply.
“No ongoing repayments are required, the incentive is not interest bearing, and the borrower can repay the incentive at any time without a pre-payment penalty,” read a release at the time of the rollout.
For example, for a family that bought a $500,000 home, the program saved the participant as much as $286 per month or over $3,430 per year.
However, the CMHC now owns a share of equity in the value of the home, regardless of whether the value of the property goes up or down.
James Laird, co-CEO of mortgage broker Ratehub.ca and president of CanWise mortgage lender, says the first-time home buyer incentive program has been “flawed from the beginning, so it’s great to see it go.”
“It is a shame that it took them this long to admit the policy failure, but better late than never,” he told Daily Hive.
“Allowing all consumers to amortize their mortgage over 30 years has always been a better way to help first-time home buyers and would be an effective replacement for this program.”
Laird says there were several major issues with the program.
“First-time home buyers struggle with two things: saving the down payment and qualifying for a big enough mortgage to purchase the home that they want,” he explained.
He says the first flaw in the first-time home buyer incentive program still required the borrower to come up with the minimum down payment. It also reduced the purchase price someone can qualify for by about 6%.
The second issue is that while the incentive is presented as interest-free, there’s still interest — it’s just at an unknown, and likely higher rate — based on the appreciation of the home, or an unknown “market interest rate,” according to Laird.
On top of that, even if a homeowner could qualify for the same amount, he says owning a home with the government “still does not make any sense.”
“The government gets to enjoy the appreciation of the home, while paying none of the expenses (i.e. property tax, insurance, maintenance),” said Laird.
Lastly, the incentive needs to be repaid in 25 years, or when the property is sold.
“For those who remain in their home, what happens if the homeowner stays in the property for 25 years or more? Will the government force the homeowner to sell, or will they have to get a new mortgage on the property to pay the government back their share?” he asked.
“These will be people nearing retirement age, and close to paying off their mortgage, but the government’s ownership stake in their house will remain.”
If you have a new application or are resubmitting for previously cancelled or declined applications, you can find more info on the CMHC site.
With files from Daily Hive Urbanized’s Kenneth Chan
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