How Does The First-Time Home Buyers RRSP Plan Work?

The Home Buyers Plan (HBP) is a program that allows qualifying first time home buyers to borrow up to $25,000 from their Registered Retirement Savings Plan (RRSP) to make a down payment on a house.  This can be up to $50,000 per couple if both individuals qualify. 

There are a number of things to keep in mind when considering using the HBP to make your down payment on a new house purchase.

This is a loan from your RRSP and must be paid back starting the second year after the funds are borrowed with a repayment period of 15 years.  If you do not make the required payment in any year, you will be required to report the amount owed that year as income for that year and you will have to pay income tax on that amount.  Also, mortgage providers have started to include the RRSP repayment amount when calculating your debt service ratios when determining the amount of mortgage you qualify for.

Money must be in the RRSP for at least 90 days prior to being borrowed.  This means that if you were to roll your down payment into an RRSP to get tax savings in the year of your purchase, you need to wait 90 days before taking the money back out or your would not qualify for tax savings on this amount.

You do not actually have to be a first time home buyer to qualify for this program.  You just cannot have owned a house in the previous 5 years.  You can also qualify for this program if you are disabled or are using the funds to purchase a home for a disabled relative.   

You must be a Canadian resident.

To qualify for this plan you must enter into an agreement to buy or a build a qualifying home on or before October 1st of the year following the withdrawal of funds and then, you must occupy that home as your principal place of residence.   

When determining how to proceed, there are many factors to take into consideration including the impact that a larger down payment may have on CMHC requirements.

If you hold investments within your RRSP that must be redeemed in order to withdraw the funds, keep in mind there may be other fees associated with redeeming them.  You should always consult your investment advisor to determine if there are any fees or restrictions associated with cashing in an investment.

For more information, see CANADA REVENUE AGENCY - HOME BUYER'S PLAN 

For more information on the local Real Estate Market, contact your Full-Time Professional Realtors, Kim & Dennis Downey.