Discussing changes for first-time home buyers
In this video, Chris Molder, a Toronto mortgage broker, sits down with Steven Ho to review expansions to the First-Time Home Buyer Incentive, and how it can help support Canadians entering the housing market.
Expanding the FTHB Incentive
Steven Ho’s contact information:
Phone number: (647)-504-0690
Email: steven@mistersauga.ca
Don’t feel like watching? Find the full transcript below!
If you’re wondering how these changes might impact your home buying plans, this is for you!
Steven: [00:00:00] Hey, everybody, it’s Stephen Ho with the Mississauga Real Estate team, and today we’ve got Chris Molder with Tridac Mortgage, Principal Broker, and we’ve got some big news today. There’s a big announcement. Tell us a little bit about it.
Expanding the FTHB Incentive in the GTA
Chris: [00:00:15] Yeah, Steve. What I wanted to talk to you about today is the expansion of the First-Time Home Buyers program that was introduced by the federal government. So this isn’t necessarily new news because in last year’s budget, they introduced this First-Time Home Buyers program. But for us here in the GTA, it really was meaningless because the threshold was much too low. To qualify for that first-time home buyers privilege, buyers weren’t going to be able to take advantage. But now, in the most recent federal budget, it’s been expanded. And I think it’s something worth talking about.
Steven: [00:00:56] Absolutely. I remember when they announced this budget and we actually talked about it. And I think the maximum that you would qualify for is for a house that was almost five hundred thousand or something like that. And even like a year or a year and a half ago, you couldn’t really get much for 500 in the GTA.
Chris: [00:01:22] Yeah, exactly. I mean, the average price, even for a condo is over that. But with the expansion of the program, the number now increases to over 700,000, which now puts you into the ballpark for sure to buy even there, because the area is so large, the geographical area is so large. I mean, you can look at houses and certainly condos in Toronto would qualify under this program.
Steven: [00:01:48] Yeah, even townhouses, the map is pretty much all of GTA. And so there’s a wide range of properties that you could get in that six, seven hundred thousand dollar budget. So, in terms of that, how does the.. what’s the incentive? Because essentially the government would kind of top off your down payment, right?
Reviewing down payment requirements
Chris: [00:02:14] That’s correct. So this program is for home buyers who are looking to add to their down payment. So they must have less than 20% down. And keep in mind, when you have less than 20% down, this is what we call an insured mortgage. You need CMHC or another Canadian mortgage insurer to insure the mortgage. So let’s use the example of a buyer that has 5% down, the minimum, so the buyer would buy with 5% down and the government would match their 5% and allow that then allows the buyer to buy with a total of 10% down. So the qualification for this program has been expanded. Used to be maximum household income was $120,000. Now it’s been expanded to $150,000. So that allows more people to qualify. And then I think the most significant aspect is that they’ve expanded the multiplier. So it used to be 4x $120,000, which was only $480,000 as a maximum mortgage. Now it’s four and a half times up to $150,000 of income, which allows you to qualify for a maximum mortgage of $675,000, which just is a huge expansion of that program and makes it worth talking about now.
Steven: [00:03:45] And plus your down payment on top of that, correct? So like you said, just over $700,000.
Chris: [00:03:52] Yeah, exactly. I mean using an example of a $700,000 purchase, a borrower would have to have their five percent. So five times seven is thirty five, so $35,000. The government would match the $35,000. So now you’re buying with 10% down and that’s great because you’re qualifying for less money. It lowers your insurance premium and is positive overall, all to help. I mean, we know we live it every day, Steve, how difficult the market is. So this is just a little bit of help for those first time home buyers. I see it’s particularly useful in the downtown Toronto condo market as well.
Making repayments as a first-time home buyer
Steven: [00:04:35] Yeah, absolutely. Even in the real estate kind of market, what I’m kind of seeing and with all the stress tests and things that the government has put in terms of regulation, trying to restrict the demand a little bit, it’s really going to affect the first time buyers going forward because the stress tests… your affordability is tight and restricted and your budget is suppressed constantly with these announcements. So having this kind of program, it’s great that there’s an opportunity to get more down payment, because that’s usually the biggest issue of why people can’t get their first places, they don’t have enough down payment. So this is helping to add a down payment. But what’s the cost of this down payment? The government is not just handing out this money for free. Right?
The incentive is registered as a second mortgage
Chris: [00:05:33] Right. So it does need to be repaid. It is technically a loan and actually gets registered as a second mortgage behind your first mortgage. So you would work with your bank as usual, and then the government would apply this second mortgage loan. So it’s registered on title. And so it needs to be repaid when there’s a triggerable event. So what’s a triggerable event? Sale of the property, refinancing of your mortgage, or you reach 25 years and the money becomes payable on the 25th anniversary. For most people, though, they’re not going to make it 25 years in a condo. Bless you if you can, but it’s not, not typical. So for most people it’s going to be at some point in the life of their home ownership or they’re going to sell it to expand or they’re going to refinance their mortgage. And so at that time, the way the repayment works is you, the lender or the government will assess the value of your home. So let’s say it’s gone up in value. You will be required to repay 5% of the increased value of your home in the future.
Steven: [00:06:49] The total value at that time
Chris: [00:06:52] Correct, the gross value.
When do buyers make repayments?
Steven: [00:06:53] So could you prepay, like, half of it or something?
Chris: [00:06:57] Yeah, you can repay it at any time on your own terms voluntarily. But if using the example of, say, a $700,000 purchase, the loan was $35,000, then you sell for $800,000 five years later. So the repayment would be five times 840. So for $40,000.
Steven: [00:07:20] Right. OK, so that costs five thousand essentially to help you get that additional down payment so that you could be a homeowner. You paid the extra $40,000 or $5,000 to borrow for that down payment, but your house has grown from $700,000 to $800,000. So you made ninety five thousand essentially for that additional five thousand costs.
Chris: [00:07:50] That’s right. Yeah, right. It’s kind of like people with family will make decisions and they’ll say, hey, I’ll give you money to help you with your down payment. And then when you sell I’ll get back my proportion of it. Plus whatever the value is. I know a lot of families do that. So it’s kind of like having a family member participate in the real estate.
Steven: [00:08:14] But Canada, as part of your family, right?
Chris: [00:08:16] That’s right. Now, Canada is part of your family.
New construction eligibility & affordable housing
Steven: [00:08:19] That’s pretty good now. So the area is only for the Greater Toronto Area and the Greater Vancouver Area. These.. Like it really helps a lot of people because it’s not just restricted to downtown Toronto or anything like that. So that’s pretty sweet. And I think they also, this also applies for new construction, right?
Chris: [00:08:48] That’s right. So if you participate in new construction, preconstruction condo, the incentive is actually increased to 10 percent to encourage lower income households to buy new housing. And a lot of developers and builders are actually aware of these programs and have and participate with them. They encourage lower income buyers to buy their projects. So keep an eye out for that as well.
Steven: [00:09:18] That’s pretty sweet. So essentially, now, I don’t really know how it works, but do you get that money for, like for the deposit part?
Chris: [00:09:32] That’s the catch, right? That’s the catch because this is registered as a second mortgage, so it is only at the time of closing. That’s right. So you’d have to have your 15 to 20 percent deposit and then we would earn back that money.
Steven: [00:09:49] But then you wouldn’t qualify, right, if you put the 20 percent down?
Chris: [00:09:53] Yeah. So it’s still lousy because you can still take out – just because you put a 20 percent deposit doesn’t mean that at the time of closing, you can’t finance with just 10 percent down.
Steven: [00:10:05] Interesting. OK.
Chris: [00:10:06] So many developers also in conjunction with this program are doing arrangements for deposits, minimum deposit structures. So they have allocated units specifically for this. So you’ll have to check in with each individual. Yeah, yeah, very much so. Because as we know, it’s a political issue to have affordable housing. And so developers now are finding that in order to get their projects approved, they need to include affordable housing as part of that project’s overall structure. Right? Exactly.
What’s in store for future interest rates?
Steven: [00:10:46] That’s all, that’s pretty encouraging to hear that for a lot of the younger buyers, they kind of feel helpless and hopeless when they see these house prices just continue to soar. But looking at kind of like how much do you really need to start to be a homeowner with a program like this? You can start with, what, $35,000?
Chris: [00:11:13] Even less. I mean, what’s the average price of a condo in the city? Maybe five fifty to six hundred. Would you agree? For a one bedroom?. So, yeah. So, you know, $30,000 is in the ballpark for sure.
Steven: [00:11:30] Yeah. And you can get started and be a homeowner and participate in the growth. So that’s exciting. The here and now rates have kind of crept up. But how are the interest rates right now? Is there a quick update you can give us?
Rates are expected to stay low
Chris: [00:11:46] Yeah, I mean things were kind of on a knife’s edge. They were battling opinions. You had the Bank of Canada that was calling for calm and encouraging the market and Canadians, trying to reassure them that rates were going to stay low. But then you had bond traders, that were seeing some risks in the economy, specifically in inflation, that maybe rates were going to go up sooner than expected. And if rates go up sooner than expected, that will have a far reaching impact on the economy. A lot more risk, not just for you and I as homeowners and people that borrow money for cars and vacation and whatnot. But for businesses, right? businesses are affected by interest rates as well, and that cuts into margins. And with COVID, businesses have been, of course, contracting, many, some not so much. But if the rates go up and cost of money goes up, that can have a long lasting effect on the economy. So interest rate risk is real, but for the time being, things have settled down and we feel like that wave has passed over. We think that interest rates are going to stay low for quite some time. And I can have a long, long conversation with you about inflation and why rates will stay low indefinitely. But for the time being, I think the message is, rates steady as she goes for now.
Steven: [00:13:17] Yeah, no, that’s good to hear. That’s definitely for another video. I definitely want to know more about that. But as for today, thanks for sharing about the expansion of this First-Time Home Buyer Incentive. And yeah, until then, we’ll see you next time.
Chris: [00:13:36] Sounds good. Steve, thanks so much for having me. If there are any questions for anybody who’s watching, please feel free to reach out. Chris Molder, you can find me on Facebook, on Google, Tridac Mortgage, whatever it is. Thank you again, Steve, for having me.
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