First-Time Homebuyer Mortgage Options in Toronto

What options are there for first-time homebuyers in Canada, and also more specifically, Toronto? In this article, you will learn about some options out there to take advantage of what’s available. We’ll discuss the incentives and programs that best suit the needs of first-timers in the market; and the eligibility criteria for each.

Understanding the First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive (FTHBI) was introduced to help make homeownership more accessible for Canadians by reducing monthly mortgage payments.

This program is no longer available (as of March 21, 2024), However, understanding its framework can help you evaluate similar programs in the future or consider alternative financing strategies.

Eligibility Criteria for the FTHBI:

• Income Limit: Buyers needed a household income of $120,000 or less ($150,000 for homes in high-cost areas).
• Maximum Purchase Price: The home price could not exceed four times the qualifying income.
• Residency Requirements: Applicants had to be Canadian citizens, permanent residents, or non-permanent residents authorized to work in Canada.

How the FTHBI Worked:

Under this program, the government provided an equity stake in your home. (loans of 5% to 10% of the home's purchase price) For example, if you received a 5% incentive on a $500,000 home, you would repay 5% of the home's value when selling or refinancing, allowing the government to share in any appreciation or depreciation of the property value.

The Home Buyers' Plan (HBP)

The Home Buyers' Plan (HBP) is a government initiative that allows first-time homebuyers to withdraw from their Registered Retirement Savings Plan (RRSP) to fund a home purchase without incurring immediate tax penalties.

This program is designed to make homeownership more accessible by leveraging personal savings for a down payment.

Key Features of the HBP:

• Withdrawal Limit: Eligible buyers can withdraw up to $35,000 individually or $70,000 for couples purchasing a home together.
• Tax-Free Withdrawal: The withdrawn amount is not taxed, provided it is repaid within the stipulated timeline.
• Repayment Terms: Buyers must repay the borrowed amount into their RRSPs within 15 years, with annual payments beginning two years after the withdrawal. Missed payments are added to the individual’s taxable income for that year.

The HBP is an excellent option for those who have been consistently contributing to their RRSP and want to utilize these savings without affecting their short-term finances.

Tax-Free First Home Savings Account (FHSA)

The Tax-Free First Home Savings Account (FHSA) is a savings tool introduced to empower first-time homebuyers with tax-advantaged savings opportunities. Combining the benefits of RRSPs and Tax-Free Savings Accounts (TFSAs), the FHSA enables prospective buyers to save specifically for a home purchase.

Advantages and Limitations of the FHSA

How the FHSA Works:

• Eligibility: Canadian residents aged 18 and older who qualify as first-time homebuyers.
• Contributions and Growth: Annual contributions of up to $8,000, with unused room carried forward to the next year. Contributions reduce taxable income.
• Utilization: Funds can be withdrawn tax-free to buy or build a first home.

For many first-time buyers, the FHSA serves as a practical and focused savings mechanism, making it easier to accumulate a significant down payment over time.

For more information, visit the Government of Canada’s website.

Provincial and Municipal Programs for First-Time Homebuyers in Ontario

First-time homebuyers in Ontario can benefit from several provincial and municipal programs designed to ease the financial burden of purchasing a home. These initiatives provide rebates, tax credits, and other forms of assistance to make homeownership more attainable.

Ontario-Specific Programs

1. Ontario Land Transfer Tax Rebate
   First-time buyers in Ontario may be eligible for a rebate on the provincial land transfer tax, up to a maximum of $4,000. This rebate can significantly reduce closing costs, making it easier for buyers to enter the housing market.
2. Affordable Home Ownership Program
   This program, offered by certain municipalities in Ontario, provides down payment assistance in the form of a forgivable loan. The specific eligibility criteria and loan amounts vary by location.

Toronto Municipal Programs

1. Toronto Land Transfer Tax Rebate
   In addition to the provincial rebate, first-time homebuyers in Toronto can also receive a rebate of up to $4,475 on the city’s municipal land transfer tax. This dual rebate can add up to substantial savings.
2. Home Energy Loan Program (HELP)
   While not exclusively for first-time buyers, Toronto’s HELP program offers low-interest loans for energy-efficient home upgrades. This initiative can help first-time buyers reduce long-term utility costs after purchasing a home.

Accessing These Programs

To benefit from these programs, you should:

• Review eligibility criteria carefully.
• Apply for rebates during the closing process or as directed by the program guidelines.
• Consult with a real estate lawyer or mortgage broker familiar with these initiatives.

For more information, visit the Government of Ontario’s and City of Toronto’s official housing assistance pages.

Mortgage Options for First-Time Homebuyers

After reviewing the programs, comes a very important decision. The decision between different mortgage options, that is. Here’s what you need to know in order to make this decision: There are Fixed-Rate Mortgages and Variable-Rate Mortgages, which we have a full discussion and comparison of, over at: Fixed vs Variable Mortgage Rates: A Guide.

Besides that, we have Open Mortgages vs Closed Mortgages to choose from, which would not be best to discuss here, but rather over at: Our other article.

For first-time buyers, a closed mortgage often offers better rates and aligns with the goal of stable monthly payments. However, an open mortgage might be worth considering if you anticipate a windfall or early repayment.

Steps to Secure a Mortgage as a First-Time Homebuyer in Toronto

Having a certain mortgage option in mind, you can move on to the next step of the process. Which is: How to secure a mortgage?

You first need to assess and consider your financial situation (i.e. Minimum Credit Score for a Mortgage in Toronto, income and potential debts, …), explore the options and possibly get a pre-approval, and proceed with the steps to come.

We have a comprehensive guide, covering all the steps on How to Get a Mortgage in Toronto.

 

Frequently Asked Questions

What is the best option for first-time home buyers?

The best mortgage option is different depending on individual financial situations. But many first-time homebuyers in Canada find the HBP (The Home Buyers' Plan) or the FHSA (Tax-Free First Home Savings Account) plans appealing; Depending on the down payment they can afford.

Fixed-rate mortgages, and variable-rate mortgages are also worth exploring based on your income stability and risk tolerance. Consulting with a mortgage professional can help tailor the right option for you.

How much do first-time home buyers have to put down in Ontario?

In Ontario, the minimum down payment depends on the purchase price of the home:

• 5% for homes costing up to $500,000.
• 10% for the portion of the price between $500,000 and $1,000,000.
• 20% for homes costing over $1,000,000 (required to avoid mortgage insurance).

The amount of your down payment can affect your monthly payments and eligibility for certain programs.

Is FHSA being discontinued?

No, the Tax-Free First Home Savings Account (FHSA) is not being discontinued. It remains a valuable tool for first-time homebuyers, allowing Canadians to save up to $40,000 tax-free for their first home.

What is the first-time home buyer rebate in Toronto?

First-time homebuyers in Toronto can benefit from the Land Transfer Tax Rebate, which offers up to $4,000 on provincial land transfer tax and an additional $4,475 on municipal land transfer tax.

Eligibility criteria include:

• The buyer must be a Canadian citizen or permanent resident.
• The buyer has never owned a home anywhere in the world.
• The buyer must intend to occupy the home as their principal residence within nine months of purchase.

What time of year is best for first-time buyers?

The best time to buy depends on market conditions and personal readiness. Generally:

• Spring: High inventory but increased competition.
• Fall/Winter: Fewer listings but less competition, often leading to better deals.

Monitor market trends in Toronto and consult a real estate agent to determine the best timing for your purchase.

 

The Bottom Line

Buying a house for the first time is an important decision, which is especially difficult when not having enough information. For first-timers looking to buy a house, there are options like the HBP initiative, the FHSA plan, the Affordable Home Ownership Program, the Toronto Land Transfer Tax Rebate, and some others discussed in the article.

Take time to assess your financial situation, explore all available programs, and consult with professionals to secure the best mortgage option for you. Take the first step today!