Given the increased cost of living and high interest rates seen across Canada, the barriers to first-time home ownership seem higher than ever. Fortunately, there are a couple of federal programs to help put home ownership within reach of first-time buyers.
Home Buyers’ Plan
For many first-time homebuyers, coming up with a down payment is a giant hurdle. The Home Buyers’ Plan aims to make this a little easier by allowing Canadians to withdraw up to $35,000 from their RRSPs, tax-free, to purchase or build a first home.
There’s a bit of fine print to keep in mind with this program, including:
The First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive program was put in place to help make home ownership more affordable for first-time buyers. It provides eligible first-time buyers with an interest-free loan of up to 10% of the price of a newly built home or 5% on a resale purchase.
The loan gives the government an equity stake in your home, which means the government will share in any increase or decrease in the value of your home up to a maximum of 8% per year (not compounded) on the loan amount. You would repay the loan plus a portion of the capital gain or loss to the government when you sell the home or after 25 years, whichever is sooner. Here’s an example of how that works:
You want to purchase a resale home for $400,000, and you borrow 5% ($20,000) through the First-Time Home Buyer Incentive.
After five years, you’re ready to sell the home, and its market value is $480,000. Housing sale prices have increased. You still need to repay your loan amount, but because the value of your home went up, the government gets a share of that from the home's shared equity amount, which is $4,000. The total amount to pay back to the government is $24,000, which is $4,000 more than your original loan.
However, imagine if you sell the house after five years and the market value of your home has decreased to $330,000. You would still owe your full loan amount plus the home's shared equity amount, but because the value of your home is lower, the amount you pay back is also lower. The shared equity amount, in this case, is -$3,500, making the total repayment amount $16,500 instead of $20,000.
Read more on how the First Time Home Buyer Incentive works.
Fine print:
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