RRSPs & Home Buyers Plan (HBP)

As many first-time home buyers know, coming up with enough money for a down payment is often the biggest obstacle in the way of owning your new home. Fortunately, there are options available to buyers to increase their eligibility to obtain a mortgage, such as the Home Buyers’ Plan.

About the HBP

The Home Buyers’ Plan allows qualified first-time buyers to withdrawal up to $25,000 from a Registered Retirement Savings Plan (RRSP) to go towards a down payment. The funds borrowed are treated as a loan, so the borrowers don’t pay taxes on that amount.

The maximum you can take out is $25,000 per person, so if you are married or purchasing with another first-time buyer, each person may take out $25,000 for a total of $50,000. This is a significant amount of money, and the HBP has proven to be a great resource for many buyers.

You must start to repay your RRSP two years after the funds are taken out and you have 15 years to repay the total amount. If you don’t pay a minimum of 1/15 per year, the amount will be considered taxable income. However, if you pay more than the amount you are required for the year, your remaining HBP balance will be reduced. Participants in the HBP can pay back the full amount at any point before the 15-year mark.

FYI

Keep in mind that the funds used must have been deposited into the RRSP for a minimum of 90 days before the withdrawal. Instead of putting money into a savings account in preparation to buy a new home, consider putting money into an RRSP instead. RRSP money can also be established with borrowed funds and can result in a significant taxable refund, which can also be used for down payment. Talk about opportunity!

Note that the owner must occupy the property being purchased unless it is for a disabled relative. It cannot be used for a rental property.

If you are purchasing your first home and would like more information on the Home Buyers’ Plan, please visit: http://www.cra-arc.gc.ca/hbp/