Updated May 5, 2021
With the real estate market showing no signs of slowing down and prices continuing to rise, you may be feeling a lot of stress and uncertainty. After drawing up your budget and getting preapproved for a mortgage, have you looked into the various financial incentives the government offers for first-time homebuyers? Follow the advice of our experts, tax specialist Josette St-Amand and financial planner Angela Iermieri. They’ve got tips to help you achieve your homebuying dreams while easing your financial worries.
1. Interest-free loan of up to 10% of the home’s value
The First-Time Home Buyer Incentive, which came out in the 2019 federal budget, is for first-time homeowners whose family income is $120,000 or less. To qualify, you must make the minimum 5% down payment, which the incentive does not replace; it simply provides additional financial support to make it easier to buy a home. You’ll reduce the borrowing amount and mortgage payments. It’s an interest-free loan, administered by the Canadian Mortgage and Housing Corporation (CMHC) - External link. This link will open in a new window., that allows homebuyers to finance 5% or 10% of their home, which must be repaid after 25 years or when the house is sold, whichever comes first.
Repaying the home buyer incentive
“The loan repayment amount is calculated on the home’s fair market value at the time, so if the incentive is 5%, you’ll have to pay 5% of the new value of the home. The higher the home value, the higher that amount will be. It can be repaid in full at any time with no pre-payment penalty.” - Angela Iermieri, financial planner.
2. Withdraw up to $35,000 thanks to the famous HBP
It can be challenging to save for a down payment, but what’s nice is that you can take up to $35,000 ($70,000 per couple) from your RRSP(s) to help finance it. You won’t pay tax or interest on the withdrawal, but you have to start repaying it in the second year after you take it out, which you can spread over 15 years. If you don’t have that amount, you could use the HBP with no RRSP “90-day loan” strategy - This link will open in a new window..
Another benefit of the HBP
The bigger your down payment, the less mortgage loan insurance you’ll have to pay. And if you’re putting at least 20% down, you might not have to take out any at all.
3. Tax credit of up to $1,375
Quebec residents who are first-time home buyers qualify for a non-refundable tax credit of up to $750, on top of the $625 federal tax credit, for a total of $1,375.
Be sure to tell your accountant you’ve bought a new home, so they can find out if you’re eligible for this tax credit.
“You have the right to claim the tax credits you’re eligible for. This money belongs to you. To make sure you don’t forget anything, it’s best to prepare your tax returns with the help of a professional.”- Josette St-Amand
4. Municipal and “welcome” tax holidays
To attract new residents, some municipalities offer tax holidays for new buyers, generally varying from 1 to 5 years. In some municipalities, you’re exempt from property taxes and in others, land transfer taxes (commonly known as “welcome taxes”). Before you buy, contact your municipality to find out the details.
“If your municipality doesn’t offer monthly payment, divide the annual amount and add it to your mortgage payment. Put that money in a dedicated account and use it to pay your annual taxes.”
3. First-Time Home Buyers’ Tax Credit (HBTC)
If you just bought your first home or didn’t live in another home owned by you or your partner in the same year, or any of the four years prior, you might be eligible for the HBTC. This a $5,000 tax credit that could get you a $750 tax rebate. Before you file your taxes for this year, check the homebuyer’s amount and the credit you can claim - External link. This link will open in a new window..
4. Land transfer tax refund for first-time homebuyers
First-time homebuyers in Ontario can receive a full or partial refund of their land transfer tax up to a maximum of $4,000. Find out if you qualify and if your home is eligible - External link. This link will open in a new window..
Also, if the home is purchased in Toronto, there’s an additional municipal transfer tax. It applies within the following boundaries: Steeles Avenue as the North border, Etobicoke as the West border, Scarborough as the East border and Lake Ontario as the South border.
First-time homebuyers can be refunded for this tax, up to a maximum of $3,725.
“Even though these incentives make it easier to buy a home, your decisions should always be based on your financial capacity.” - Angela Iermieri.