The government's First-Time Home Buyer Incentive (FTHBI) comes into effect today.

The program is aimed at making it easier for young people to buy their first home by lowering new buyers' monthly mortgage payments.

Introduced by the Liberals in their 2019 budget, the federal government will absorb five per cent of monthly mortgage payments on existing homes and 10 per cent on new builds.

But there are a few notable conditions to watch out for, which have come under fire since the plan's March announcement. Ottawa-based mortgage broker Frank Napolitano spoke with to help lay it all out.

First off, to be considered eligible, applicants must not have owned a house in the last four years – exceptions will be made for those in a "breakdown of marriage or common-law partnership."

Secondly, a homebuyers' combined annual household income must be lower than $120,000 before taxes and deductions. As Napolitano says, that qualifier strikes out most residents from Vancouver and the Greater Toronto Area.

"The max income is $120,000 that can be used for this program, therefore to qualify for a mortgage – if you have no debt – it’s typically four, maybe four and a quarter times your annual gross income so there’s not a lot of properties in the $500,000 range or less. Maximum property value under this program would be $560,000."

To that end, the FTHBI is more likely to benefit residents in less crowded markets, like smaller urban centres in Ontario, Quebec, the Prairies, or out east where you can still find a home below the price cap.

Additionally, as Napolitano points out, first-time buyers will still have to cough up default insurance under the plan.

"We've had customers call us and say 'we'll put the 10 per cent down and then we’ll buy a new build and the government will give us 10 per cent so we don't have to pay default insurance.' False. Regardless of the down payment, this program only works if you have default insurance."

Default insurance protects financial institutions from default – the premium gets tacked on to your mortgage payments.

There are obvious paybacks for the government. While they provide an interest-free loan, they also secure shared equity in your home as it goes through gains and losses. This means the amount paid back to the government will fluctuate based on how much your home increases or decreases in value.

The loan must also be paid back under two circumstances:

  • if you sell your home;
  • or at the end of 25 years.

Minister of Families and Social Development Jean-Yves Duclos – who also oversees the Canada Mortgage and Housing Corporation – is responsible for the rollout of the program. In an announcement last Wednesday to informally launch the FTHBI, the minister touted the program for empowering the middle class.

"Thanks to mortgage payments that are more affordable, many families will have hundreds of dollars more each month in their pockets – money to spend on things like healthy food, sports activities for their kids, or even save for the future," said Duclos in the statement.

The program is expected to serve about 100,000 Canadian homebuyers.