Why I didn’t use the First Time Home Buyer’s Incentive – The blog of a first time home buyer

A hot topic around election time (and my home purchasing time) was how to improve housing affordability for the average Canadian, and particularly, the first time home buyer. I’m not going to go into any politics, but I will go into what we got right before the election, the Liberal Government’s First Time Home Buyers’ Incentive.

I could explain it myself, but why do that work when I already made a video of Rob explaining it? (Click volume on in the bottom corner)

Having an extra 5% towards my house initially sounded nice, but in the end I chose not to use it for a few key reasons. I’m not aiming to convince you one way or another, simply explaining why I chose not to take advantage of it.

In my situation, I would have been eligible for a FTHBI of just under $10,000. This would reduce my monthly mortgage by a little under $50 a month. $50 extra a month is nothing to complain about, but what is, is the fact that when you sell your home, or complete the mortgage, you need to repay the loan in full, at the current value.

Let’s run through a few scenarios. Let’s say I sell in 5 years, my home value remains the same, and I’ve been making minimum payments on my mortgage. In 5 years, I will have built $47,000 in equity. If I can sell it for full value, I will have to pay $11,500 in REALTOR®️ fees, then repay the $10,000 FTHBI, leaving me $25,500 to put towards my next house. I would have also saved $3,000 on mortgage payments. Now if I hadn’t taken the FTHBI, in 5 years I will have built $38,500 in equity, which after paying my REALTOR®️, would leave me with $27,000 towards my next house.

I know what you’re thinking, you’ll only make $1,500 more, and you saved $3,000, why not take it? Well let’s now see what happens if my home value increased 2% year over year (which is generous, but within the realm of possibility). Not taking the FTHBI will net me around $2,500 more. 

With these amounts, I’m not saving any money at 5 years, but by 10 years in, it has switched in favour of not taking it. Not to mention having to repay the full 5% all at once if I did keep my home for the entire mortgage duration. To me, I was sure to choose a mortgage and a home that I could afford comfortably, so that $50 a month doesn’t impact me greatly. On the flip side, making thousands more when I do decide to sell does matter to me. For that reason, I decided to not use the First Time Home Buyers’ Incentive.

I believe that the FTHBI does what it set out to do, improve housing affordability, but the impact that it makes in Atlantic Canada, with the relatively low cost of housing, is fairly minimal. Being sure to purchase a home that fits comfortably within your budget is key to maintaining real affordability. Additionally, being able to make extra payments, even $1000 a year, can reduce your mortgage by years and make a much greater impact than the FTHBI savings.

Andy Tree is a professional Wedding Photographer, marketing expert, coffee lover, millennial, board game enthusiast, and overall nerd. Over the next weeks he’ll fill you in on every step of his search and first home purchase.

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