First-Time Home Buyer Incentives: Everything You Need to Know

There’s more than one first-time home buyer incentive available to house hunters looking to step on the property ladder.

By Emily Southey | 11 minute read

Are you looking at the cost of homes and wondering how you’ll ever scrape together enough money to buy your first home? You’re not alone.

While the majority of Canadians view homeownership as a good investment, many are concerned about housing affordability. According to Wahi’s 2024 Homebuyer Intentions Survey, 21% of Canadians say they’re not considering buying a home because they wouldn’t be able to afford it.

But if you’re one of those Canadians for whom the idea of buying a home may seem out of reach, don’t fret.

Sometimes, you just need more time: it takes homebuyers just over four years on average to save for a downpayment, as per the Canada Mortgage and Housing Corporation’s 2024 CMHC Mortgage Consumer Survey. Meanwhile, there are various plans, programs, and incentives in place to help new homebuyers break into the real estate market.

Here’s everything you need to know about first-time homebuyer incentives in Canada.

1. The First Home Savings Account

Announced in Canada’s 2022 budget, the First Home Savings Account is a tax-free account that lets homebuyer hopefuls contribute $8,000 per year (to an overall maximum of $40,000) for the eventual purchase or construction of their first home.

This first-time homebuyer incentive is a registered plan, so prospective homebuyers can use it to hold investments, similar to a Tax-Free Savings Account (TFSA). However, unlike a TFSA, contributions are tax-deductible. (It’s important to note that FHSA withdrawals only remain tax-free if they are used to buy or build the account holder’s first home.)

To open a FHSA, you must be a first-time homebuyer between the ages of 18 and 71 as well as a Canadian resident. You are considered a first-time homebuyer if you have not lived in a home that you owned in full or in part (and which was your primary residence) at any point in the past four calendar years. 

2. The Home Buyers’ Plan

Canada’s Home Buyers’ Plan (HBP) allows Canadians to take funds from a Registered Retirement Savings Plan to build or buy a home. The plan is limited to Canadian residents who are considered first-time homebuyers, with some exceptions (for example, it can be used to purchase a home on behalf of a disabled person). As of April 2024, the current financial limit people may withdraw from an RRSP is $60,000. These funds must be repaid to the RRSP within 15 years from the date they were withdrawn.

Repayment toward your RRSP must begin the second year from when you withdrew funds, although you may choose to make these payments earlier. You may also repay more than you are required for any given year. Both starting payments early and repaying more than you are required will reduce your remaining HBP payments in later years.

While targeted to those looking to step on the property ladder for the first time, this first-time homebuyer incentive could be used more than once, supposing you’ve been renting for the past four years and have repaid any funds withdrawn from your RRSP for a previous home purchase.

What is a Registered Retirement Savings Plan?

An RRSP is an account primarily used for saving funds for retirement. These funds defer taxes until they are withdrawn, making it easier for savings to grow. You can also gain interest from RRSPs.

There are several types of RRSPs. One of these is a self-directed RRSP. This plan is registered in your name and directs all tax benefits to you. A spousal RRSP gives you a tax deduction but is registered in your spouse’s name. Another type of RRSP is the Locked-in RRSP. This plan allows you to manage your pension funds if you decide to leave your employer before retirement.

The HBP isn’t the only way to use an RRSP. For instance, you can use funds from an RRSP to invest in stocks, exchange-traded funds (ETFs), and mutual funds. You can also invest in bonds, guaranteed investment certificates, or gold and silver certificates.

Do I Qualify for An RRSP?

There is no minimum-age requirement to start an RRSP. However, one age-related restriction to keep in mind is that investors must close their RRSP one year after they turn 71. If you have employment income, a valid Social Insurance Number, and regularly file tax returns, you should have no problem opening an RRSP account.

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3. Mortgage-Default Insurance

Even after saving and taking advantage of a first-time homebuyer incentive such as the FHSA or the HBP, most people don’t have enough capital to pay the entire cost of a home outright. For this reason, it’s common for people to rely on a mortgage for a substantial portion of the cost of the home.

How much you borrow depends on a variety of factors — including the amount you have saved, which market you’re shopping in, and the type of home you desire — but there are minimum requirements to meet. If you make a smaller downpayment (less than 20%), you’re on the hook for insurance.

Making the Minimum Downpayment

Historically, 20% has been the norm for downpayments in Canada. However, as the cost of housing has increased, particularly in large urban centres, lenders have increasingly allowed buyers to make smaller downpayments.

In Canada, downpayments of less than 20% come with the added requirement of the buyer purchasing mortgage loan insurance. According to CMHC, 37% of all existing mortgages are insured, suggesting many Canadians take advantage of mortgage-default insurance.

Currently, the minimum payment Canadians can make on a home’s price is 5% on a home costing $500,000 or less. For homes over $500,000 but under $1 million, this minimum downpayment is 5% on the first $500,000 and 10% on the remaining balance.

Any mortgage obtained with a downpayment of less than 20% of the purchase price is classified as high-ratio. For years, these mortgages have only been available for homes with a price of $1 million or less. Otherwise, buyers have had to save for the standard downpayment of 20% or more. However, effective Dec. 15, 2024, the cap on insured mortgages is increasing to $1.5 million. 

High-ratio mortgages can be considered a first-time homebuyer incentive because they make it easier to afford a downpayment, although they come at an added cost in the form of default insurance. (Lenders require insurance to protect themselves against borrowers skipping out on mortgage payments or defaulting on their mortgage.)

High-Ratio Downpayments

The term high-ratio mortgage refers to the larger spread between the downpayment made and the amount lent. Mortgage-default insurance is calculated as a percentage of the loan and can be paid monthly or as a lump sum. These rates range from 1.8% to 4% of the mortgage amount. Loaning a higher percentage of a house’s value will result in a correspondingly higher payment on insurance premiums.

Since mortgage-default insurance can be blended into monthly mortgage payments, it allows many buyers the opportunity to own a home sooner than if they needed to wait and save a minimum of 20% for an upfront downpayment. Mortgage-default insurance is offered by three institutions: the Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty and Sagen.

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4. Extended Amortizations

Since 2012, the maximum amortization period available to first-time Canadian homebuyers has been limited to 25 years. Effective Dec. 15, the federal government is adding a new first-time homebuyer incentive to the mix: 30-year amortizations for all first-time homebuyers.

Put simply, the amortization period is the period of time that a borrower has to pay back their mortgage loan. When you extend the amortization, you spread out your monthly payments over a longer period of time, thus reducing them. 

A longer amortization period is less of a burden in terms of monthly expenses and therefore makes ownership more affordable. Compared to a 25-year amortization, a 30-year amortization could shave $250 per month off of a first-time homebuyers monthly mortgage payments on a $500,000 loan, according to Perch Mortgage calculations provided to Wahi. The calculations assume a five-year fixed-rate mortgage of $500,000 with an interest rate of 4.25%.

The availability of a 30-year amortization also boosts buying power. For example, a National Bank study published in September 2024 breaks down how much more home a buyer can afford by tacking five years onto the loan term. The numbers range from about $22,000 in New Brunswick to a little over $51,000 in Ontario.

Previously, only existing homeowners who had built up 20% equity in their property had access to 30-year amortizations, but with the new rule changes, anyone purchasing a pre-construction/new-build home can benefit (in addition to first-time buyers).

Note that there are potential drawbacks to longer amortizations. For one, you’re building equity at a slower pace. A longer amortization also increases the amount of interest paid over the term of the loan. You’ll need to weigh these factors before deciding to go with a 30-year amortization. 

5. Land-Transfer-Tax Refunds

Land-transfer taxes (LTT) are municipal or provincial fees levied on a property transaction. They vary from location to location.

Most Canadian provinces and some cities have a land-transfer tax, with the exception of Alberta and Saskatchewan, which have less-substantial transfer fees. Fortunately, a number of provincial and municipal governments provide refunds and incentives to reduce land-transfer taxation. These programs are directed to first-time homebuyers.

In Ontario, your land-transfer tax is based on a multi-tiered rate system, with 0.5% charged on the first $55,000, 1% on amounts above $55,000 up to $250,000, and so forth. In addition to provincial LTT, some Canadian cities, such as Toronto, Victoria, and Vancouver, levy a municipal tax on property transfers.

In Toronto, the municipal LTT uses the same percentage tiers as the provincial system, so a Toronto property will have double the LTT compared to a home of equal price elsewhere. In this case, first-time homebuyers are eligible to receive refunds for both provincial and municipal LTT.

Instead of making first-time homebuyers pay this fee in full, Ontario, for example, offers provincial-land-transfer-tax refunds of up to $4,000. This refund’s limit of $4,000 is reached when a home’s purchase price is $368,000 or more. This means the refund of $4,000 is subtracted from municipal land tax on homes priced above $368,000.

The eligibility requirements for provincial land transfer tax refunds dictate that buyers must not have owned or have held any interests in a home while they were a spouse. You must also be at least 18 years old to be eligible.

If you’re buying a home in the City of Toronto, you will also be eligible for a refund for the municipal LTT. This refund is like the provincial refund but slightly more generous, offering a rebate of up to $4,475 for first-time homebuyers. People are eligible for these refunds when purchasing newly constructed or resale residential properties. Other conditions for eligibility dictate the buyer must be a Canadian citizen or a permanent resident. Buyers can claim their rebate after registering, or within 18 months of registration.

Examples:

Let’s say you’re purchasing a property outside Toronto, such as Thunder Bay or Ottawa. If the cost of a home there is $800,000 the blended rate for land transfer tax will be 1.56%. This percentage amounts to $12,475 of provincial LTT. Subtracting Ontario’s Provincial Land Transfer Tax Refund, you will end up paying only $8,475.

To compare, if you were buying a house at this price in Toronto you would need to consider municipal LTT as well. In total, your provincial and municipal land taxes amount to $24,950. Combining both refunds ($4,000 for provincial and $4,475 for municipal) will leave you owing $16,475.