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Down payment financing option: Home Buyers' Plan

If you are a first-time home buyer, the Home Buyers' Plan (HBP) allows you to withdraw money from your Registered Retirement Savings Plan (RRSP) tax-free to make your down payment. The HBP is administered by the Canada Revenue Agency (CRA).

There are certain conditions you must meet to be eligible for the HBP. For more information, contact CRA.


How much can you withdraw?

  • You can withdraw up to $25,000 from your RRSP.
  • If you buy the home together with your spouse, partner, or someone else, each of you can withdraw up to $25,000, for a total of up to $50,000.
  • The withdrawal from your RRSP does not need to be included in your income on your annual income tax return, and no tax is taken off the money you withdraw.


What is the payback period?

  • You don't have to start paying back the money to your RRSP until two years after the purchase of the home.
  • You must pay back all withdrawals from your RRSP within 15 years by making RRSP deposits each year, starting the second year following your withdrawal. CRA will determine what your minimum yearly repayment will be and will notify you once you need to start repaying the amount.
  • If you do not repay the amount due in a given year, it is included in your taxable income for that year and you'll have to pay income tax on this amount.

Example: HBP reimbursement

In 2010, Martin withdraws $6,000 from his RRSP to participate in the HBP to buy a home. Martin's minimum yearly repayment to his RRSP, starting in 2012 (two years after purchase), will be $400 ($6,000 ÷ 15 years).

If Martin decides not to make any reimbursement in 2012, he will have to include $400 in his income when he files his 2012 income tax return. His minimum yearly HBP repayment, however, will remain at $400 for the following years.

On the other hand, if Martin decides to make a HBP reimbursement of $1,000 to his RRSP in 2012, his minimum yearly repayment for 2013 and the following years will be $357.14 ([$6,000 - $1,000] ÷ 14 years).


Questions you should ask yourself

  • Will you be able to make the annual repayment to your RRSP each year?
    If not, using your RRSP funds to purchase a home can cost you a lot in income tax.
  • Can you avoid paying mortgage default insurance by using your RRSP investments to increase your down payment?
    If so, the savings may be significant.  Your financial advisor can help you find answers to these and other questions that you may have.


SOURCE : Agence de la consommation en matière financière du Canada /

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