First Time Home Buyer Incentives in Canada

An Introductory Guide

Canadian mortgage borrowers have experienced stress over the past year due to increasing interest rates. News headlines commonly refer to the prime rate, noting the frequent increases in the prime rate and the impact it has on variable-rate mortgage borrowers. As a mortgage borrower, do you understand how the prime rate affects you?

A family is looking at their new home with a real estate agent.

Homeownership is a goal for most Canadians. Most of us want to find a place to raise a family, provide shelter and to call your own. From the news headlines, one might think that homeownership is near impossible in some of our larger markets. There is some truth to this but if you are evaluating your homeownership prospects as a first-time buyer, there are many programs in place that can assist you. Your evaluation of your financial readiness for homeownership needs to take these programs into account.

Various government incentives such as the RRSP Home Buyers' Plan, tax rebates, and the First Home Savings Account (FHSA) offer financial assistance and are essential tools in making homeownership more attainable. Considering factors like steady income, job stability, and long-term plans will also guide you in determining if you're ready for this significant milestone. This guide aims to provide an overview of what is available to you to help you finance the purchase of your first home. There are many government programs and incentives available.

This guide aims to provide an overview of what is available to you to help you finance the purchase of your first home. There are many government programs and incentives available.

The First-Time Home Buyer Incentive (FTHBI) is No More

The government has canceled the First-Time Home Buyer Incentive (FTHBI). This program was a shared equity mortgage that received little interest in the market. It was widely criticized when launched, and it appears the critics were correct. Good riddance to a poorly conceived idea.

Given the recent demise of the FTHBI, now is a good time to evaluate what other government programs may be worthy of consideration by first-time home buyers.

RRSP Home Buyers' Plan (HBP)

The RRSP Home Buyers' Plan (HBP) offers a unique opportunity for first-time home buyers to use otherwise locked away savings to purchase a home. This plan allows individuals to withdraw up to $35,000 from their Registered Retirement Savings Plans (RRSPs) to finance a down payment on their first home, with the advantage that the withdrawal is tax-free.

Here's a breakdown of key points regarding the HBP:

Withdrawal Limit: Up to $60,000 can be withdrawn tax-free from an individual's RRSPs. This amount must be repaid within a 15-year period to avoid it being taxed as income.
Eligibility Criteria: To be eligible for the HBP, you must be a first-time home buyer, have a written agreement to buy or build a qualifying home, intend to occupy the home as your principal residence within one year after purchase or construction, and be a resident of Canada at the time of the withdrawal.
Repayment Conditions: The repayment period starts the second year after the year in which the withdrawal was made. Each year, at least 1/15 of the total withdrawn amount must be repaid into the RRSP accounts. Failure to make a repayment results in that minimum repayment amount being counted as taxable income for that year.

First Home Savings Account (FHSA)

For first-time home buyers in Canada, one of the major challenges is saving for a down payment. The introduction of the First Home Savings Account (FHSA) in 2023 provides an unparalleled tool for saving towards this significant life milestone. Here's how the FHSA works:

Eligibility and Contributions: To open an FHSA, you must be a Canadian resident, at least 18 years old, and a first-time home buyer, meaning you have not owned a home in the previous four years. You can contribute up to $8,000 annually, with a lifetime limit of $40,000.
These contributions are tax-deductible, reducing your taxable income for the year.
Tax Advantages: The FHSA stands out for its tax efficiency. Not only are your contributions deductible, but the income and gains generated within the account grow tax-free. When you are purchasing your first home, withdrawals can be made tax free, provided they are used for this purpose.
Flexibility and Longevity: The account has a 15-year lifespan or until the end of the year you turn 71, offering flexibility in planning your home purchase. If you decide not to buy a home, the FHSA balance can be transferred to an RRSP or RRIF on a tax-deferred basis or withdrawn with taxes applied.

The FHSA is now widely available at most financial institutions. Check with your financial institution or financial advisor to find out if it is right for you and how to set one up.

The HBP, in conjunction with the FHSA, can offer significant advantages for prospective home buyers who are able to save. The HBP allows first-time home buyers to withdraw up to $35,000 from an RRSP to buy a home. Adding the maximum $40,000 saved in an FHSA, a homebuyer maximizing both programs will be able to access $75,000 in capital for a down payment, plus any growth in the value of the investments in the FHSA.

Provincial Incentives

In Canada, first-time home buyers have access to a variety of provincial and territorial incentives designed to make the path to homeownership more accessible and affordable. Here's a look at some of these programs:

Saskatchewan's First Time Homebuyer’s Credit: Offers a non-refundable tax credit of up to $1,050 on qualified homes. You must be subject to Saskatchewan income tax to benefit from the tax credit.
Québec's Tax Credit for First-Time Home Buyers: Provides up to $1,400 in tax relief for eligible purchasers of qualifying homes.
Land Transfer Tax Rebates: Across various provinces and territories, first-time buyers can benefit from rebates on land transfer taxes, which can significantly reduce the upfront costs associated with purchasing a home. Land transfer tax is the largest closing costs associated with purchasing a home. Rebates are available if you live in Ontario, British Columbia, or Prince Edward Island. For instance:
In Ontario, rebates of up to $4,000 are available.
British Columbia offers a maximum rebate of $8,000.
In PEI, rebates can amount to as much as $2,000.
The City of Toronto also offers a rebate under the Toronto First-Time Home Buyer Incentive. Eligible first-time home buyers can receive a rebate of up to $4,475 on the municipal land transfertax.

These incentives are attractive for first-time home buyers but often come with restrictions, including only being eligible for homes under a certain value (for example, only existing properties under $500,000 are eligible for the full rebate in BC).

GST/HST New Housing Rebate

This rebate provides a tax refund if you purchase a newly built home or substantially rebuild/renovate an existing home. GST/HST is chargeable on new build homes and this program can rebate the GST portion to those first-time homebuyers that qualify.

In some Provinces it may also be possible to obtain a partial rebate for the HST component.

Private Market Products That Can Assist First-Time Homebuyers

Rent-to-Own

For renters who are struggling to save the required down payment to purchase their first home, a rent-to-own program may be of benefit. These companies purchase the home for you and then rent it to you. A portion of the rental payment is set aside (i.e. saved) for you. These saved funds you can be used toward a down payment to purchase the home. Once you are ready to purchase the home, the rent-to-own company will sell the home to you.

Shared Equity

There are companies that offer to provide some of your required down payment to assist you in qualifying for the mortgage you need to buy a home. This is not exclusive to first-time homebuyers, but it is a product that is expected to help them the most. These companies don’t lend you money, they co-invest in the property with you. When you decide to sell your home, the company earns a share of the gain on sale of the home.

Both products come with some complexity and cost, but they can help some first-time homebuyers get into the housing market earlier than they may have been able to do on their own.

Why Do These Programs Exist?

A pillar of our society and culture is household formation. Communities thrive as new families enter the housing market and contribute to the local community. Homeownership has also been proven to be a means to save and build wealth for Canadians over time. In fact, RBC economics recently estimated that half of all wealth generated in Canada in the last 3 decades has come from homeownership. Our government is well served by encouraging first-time homebuyers to enter the market.

While the government offers these incentives for good reasons, they inexplicably then create rules and conditions that make it harder for first-time homebuyers to enter the market. The mortgage stress test is a great example. OSFI (the banking regulator) has also recently announced that they will place limits on loan-to-income ratios as banks. So, while OSFI tightens rules to keep new buyers out of the market, the federal and provincial governments create tax and other incentives to bring them into the market. We wish it all made sense.

Conclusion

The incentives exist for first-time homebuyers, so take advantage of them. If you are just starting out and wondering how you will ever be able to afford a home, set up a first-home savings account. As you start to save money and reap the tax benefits, you will see that before long, your financial ability to own a home is not so far away after all. These incentives not only illuminate the pathways to homeownership but also enhance financial readiness and planning, ensuring a more accessible and sustainable entry into the real estate market.

For tailored guidance and additional assistance in navigating these waters, consider reaching out to our team at Frank Mortgage. Call us at 1-888-850-1337 or find us at www.frankmortgage.com to discover further resources for first-time home buyers. We can help prospective homeowners equip themselves with the knowledge and tools necessary for informed decision-making, setting the stage for success in one of life's most significant investments.

FAQs

Q: Where can I get an FHSA?

A: The FHSA is a relatively new product, launched in 2023. After some time to get set up. Most financial institutions now have FHSA products they can offer. Most banks, credit unions, insurance companies and wealth management companies offer an FHSA.

Q: How do I qualify as a first-time homebuyer?

A: There are several criteria that are fairly consistent across all FTHB programs:

You are a Canadian resident.
You and/or your spouse or co-owner have not owned a home, either jointly or outright, in the prior four years

There are exceptions if you have recently separated from and no longer live with a spouse or partner.

Q: What is the minimum down payment required for a first-time home buyer in Canada?

A: The minimum down payment for a first-time home buyer in Canada is 5% of the home's purchase price below $500,000, plus 10% of the value between $500,000 and $1 million. For properties valued more than $1 million, the minimum down payment is 20%.

Q: Why was the First Time Home Buyer Incentive cancelled?

A: The program was underutilized and not considered helpful for most first-time homebuyers. The eligibility criteria seriously restricted most buyers from qualifying.

< Previous

Next >

About The Author

Don Scott

Don Scott is the founder of a challenger mortgage brokerage that is focused on improving access to mortgages. We can eliminate traditional biases and market restrictions through the use of technology to deliver a mortgage experience focused on the customer. Frankly, getting a mortgage doesn't have to be stressful.

Connect with Don on LinkedIn!

The Best Mortgage Brokers

By George Holicka • March 25, 2025

Growing Market Share in Canada

Impact of Tariffs on Housing and Mortgages

By Don Scott • February 27, 2025

Recent news about the United States threatening to impose tariffs on Canadian goods has introduced significant uncertainty into Canada's economic landscape. These developments are poised to impact various sectors, notably the housing and mortgage markets. While the potential ramifications of these tariffs are not easy to predict, we attempt here to identify the issues we should all be considering. The Tariff Threat In early Feb, U.S. President Donald Trump announced significant tariffs on Canadian imports. He talks frequently about unfair trade and has also stated his objective was to address concerns over illegal immigration and drug trafficking into the United States. On February 1, 2025, he signed executive orders imposing a 25% tariff on all Canadian goods, excluding energy products, which were subjected to a 10% tariff. These tariffs were initially set to take effect on February 4, 2025. The US President Trump postponed the imposition of these tariffs for one month, until March 4, 2025. This postponement was intended to provide time for Canada to address U.S. concerns regarding border security and drug trafficking. On Feb 27, the US President confirmed that the tariffs on Canada and Mexico would be put in place as of March 4. This is not good news and hopefully Canadian diplomats can resolve this. Immediate Economic Implications Despite the delay to March 4, and some moves by Canada to address the issues, tensions have escalated. On February 10, 2025, President Trump announced additional tariffs - a 25% duty on all steel and aluminum imports, including those from Canada, set to commence on March 12, 2025. In response, Canada has threatened retaliatory tariffs on U.S. goods, making the prospect of an unexpected trade war between historically good neighbours a real possibility. The US has also said reciprocal tariffs will take effect in April. The situation remains fluid, with ongoing negotiations between the U.S. and Canada aiming to resolve trade disputes and address the underlying issues prompting the tariffs. These measures are expected to disrupt trade flows, elevate production costs, and potentially lead to a slowdown in economic growth. Bank of Canada Governor Tiff Macklem has cautioned that such trade conflicts could curb economic growth, hurt the Canadian dollar, and potentially lead to higher inflation. Impact on the Housing Market The imposition of tariffs on all goods and a retaliatory response from Canada would have several negative consequences for Canadian housing markets. Increased Construction Costs: Tariffs on imported materials, such as lumber and steel, would increase construction costs. Any increase in construction costs would be passed through to consumers, resulting in higher prices for both new homes and renovations. These elevated costs could exacerbate housing affordability issues and constrain the supply of new homes. Market Uncertainty: The prevailing economic ambiguity may deter potential buyers, leading to a deceleration in housing demand. Prospective homeowners might adopt a cautious stance, postponing purchases until the economic and interest rate outlook stabilizes. Job Losses: Higher costs could slow activity in housing development and renovation that could lead to job losses. This could place some current mortgage borrowers and homeowners under stress and take other potential new market entrants out of the market. Tariff Impact on Mortgages The impact that significant tariffs have on the mortgage market could be immediate: 1. Mortgage Rates There are diverging opinions currently about where mortgage rates may go if tariffs are imposed. There are two key channels through which we will see the interest rate impact. Bank of Canada Monetary Policy Adjustments - Most economists agree that a tariff war with the US will slow down the Canadian economy, perhaps sending us into a recession. The Bank of Canada may contemplate reducing interest rates to stimulate economic activity. Governor Macklem has indicated that monetary policy could support demand in the event of a trade war, suggesting that rate cuts might be more substantial than previously projected. However, many have cautioned that interest rate cuts may not have a meaningful impact on an economic slowdown resulting from higher costs due to tariffs. While the Bank of Canada may not be able to effectively offset the negative impact, many analysts, including those at the Bank of Montreal, think they might cut rates by as much at 1.50% this year if the US imposes the full 25%, across-the-board tariffs. This would significantly reduce variable mortgage rates, which would be beneficial for mortgage borrowers. Bond Yield Fluctuations - Escalating trade tensions have already led to a decline in Canadian bond yields, with the 5-year bond yield reaching its lowest point since June 2022. Bond yields often decline in advance of economic weakness. A downturn in bond yields is often followed by a decline in fixed mortgage rates, potentially offering relief to borrowers. 2. Reduced Market Activity The tariff talk creates tremendous uncertainty. The old saying is ‘uncertainty breeds contempt’ and we are seeing that in the reactions many are having to the tariff threat as well as in declining consumer confidence in survey results. We may witness a slowdown in housing and mortgage market activity with new buyers, movers, and investors exercising caution until the tariff issue is resolved. 3. Mortgage Defaults Economic weakness usually leads to worsening performance in mortgage portfolios. Job losses, loss of confidence and narrowing options will lead to an increase in mortgage defaults as borrowers struggle to meet obligations. We have already recently seen an uptick in consumer credit defaults and mortgage delinquencies have been increasing. Despite this concern, Canadian mortgage portfolios have performed well during prior downturns. The legal structure and culture in Canada promote good payment behavior and Canadians always do whatever it takes to keep their home.

A man is giving keys to a woman in a living room.

Owner-Occupied Rental Property

By Don Scott • February 11, 2025

Purchasing an owner-occupied rental property in Canada can be a strategic way to build wealth while securing a home for yourself. But if you’re planning to put down less than 20% of the property’s purchase price, you’ll likely need mortgage default insurance. Here’s what you need to know about how mortgage default insurance works for owner-occupied rental properties.

Learn More

What’s Next?

Join our email community

Join Our Email Community

Mortgage Brokerage Licensed in Ontario (#13204), British Columbia, Alberta, Saskatchewan (#514115), Manitoba, Nova Scotia, Newfoundland & Labrador, and New Brunswick (#230015752).