As an entrepreneur, Alex Leduc says it would be tough for him to qualify for a mortgage. But even if he were buying a home under today’s conditions, the 28-year-old founder of an online mortgage platform says he wouldn’t necessarily use Canada’s First-Time Home Buyer Incentive (FTHBI) — a shared-equity program the federal Liberals have pledged to expand in expensive cities such as Toronto.

The program could help some buyers lower their monthly mortgage payments. But with property prices still rising in the Toronto area and interest rates remaining at historic lows, Leduc says buyers have to consider carefully whether they want to repay 5 or 10 per cent of their home’s increased value when it comes time to sell.

The same applies to renovations that might increase the property’s worth, he said.

“If you’re going to be repaying the incentive based on your property value — any money you put into your home to increase the value, you’re going to have to be paying back a piece of that. So that would be punitive,” Leduc said.

His startup, called Mortgauge, developed a calculator to help consumers assess the potential costs and benefits of the first-time buyers incentive — whether lower mortgage payments in the short-term are worth the payback in equity if your home’s value appreciates.

“We help somebody assess not just how much interest would you save, but how much property would you give up for those interest savings,” he said.

The buying incentive was announced by the Liberal government in its March budget to help millennials access the increasingly challenging road to home ownership. The program offers interest free loans on up to 5 per cent of the purchase price of a resale home or up to 10 per cent of a new construction property. It applies to buyers with a maximum household income of $120,000 and a minimum down payment for an insured mortgage on a home valued at no more than $560,000.

Homebuyers need a minimum down payment of at least 5 per cent on homes valued at up to $500,000 and no more than 20 per cent to qualify for mortgage insurance.

On the fall campaign trail, the Liberals pledged to increase the maximum allowable purchase to $789,000 and raise the household income qualification to $150,000. That would apply to the Toronto region, where the average home price last month, including all kinds of houses and condos, was about $843,000.

Have your say

Even though it would allow more homes to qualify under the incentive plan, buyers would still be paying back a portion of their equity, Leduc said.

“Right now I can fund someone at 2.4 per cent on a five-year fixed (loan). But let’s say (interest) rates jump so it’s now 3.5 per cent ... now it starts to get more interesting because the higher the interest rate the more I save from doing this,” Leduc said.

But buyers still need the minimum down payment to qualify for 5 per cent or 10 per cent.

“If first-time homebuyers didn’t need the minimum to get in that might be interesting. Or, if they could use that 5 or 10 per cent to get to 20 per cent and not pay mortgage insurance, that would be interesting,” he said. “If a buyer could use the incentive loan to get their down payment above 20 per cent so they didn’t need mortgage insurance that could be beneficial.”

Sample calculation of impact of existing First-Time Home Buyer Incentive

The calculation assumes a household income of $120,000 with a $50,000 down payment on a $530,000 new construction detached home that qualifies for a 10 per cent loan under the incentive plan. The mortgage rate would be 2.42 per cent fixed for five years with a 25-year amortization.

Monthly mortgage cost without the FTHBI: $2,216 (principal and interest)

Monthly mortgage cost with the FTHBI: $1,949 (principal and interest)

Loading... Loading... Loading... Loading... Loading... Loading...

Savings over five-year loan term: $7,635 (interest and mortgage insurance)

If the home appreciates an average of 2 per cent a year over the five-year loan term, the homeowner owes $3,853 on the incentive loan.

If the home’s value appreciates 8 per cent a year, the buyer pays back $17,372 on the incentive loan.

Sample calculation of impact of proposed extended First-Time Home Buyer Incentive

Assumes a household income of $150,000 with a $50,000 down payment on a $650,000 new construction detached home that qualifies for a 10 per cent loan under the homebuyer incentive. Applies a 2.42 per cent fixed, five-year mortgage amortized over 25 years.

Monthly mortgage cost without the FTHBI: $2,771 (principal and interest)

Monthly mortgage cost with the FTHBI: $2,442 (principal and interest)

Interest savings over five-year term: $8,792 (interest and mortgage insurance)

If the home appreciates an average of 2 per cent a year over the five-year term, the buyer pays $4,725 on the incentive loan.

If the home’s value increases an average of 8 per cent annually, the buyer owes $21,306 on the incentive.

Source: Alex Leduc, Mortgauge

Correction - October 4, 2019: This article was edited from a previous version that mistakenly referred to Mortgauge as a brokerage. In fact, it is an online platform.