Buying your first home in Canada? The Home Buyers’ Plan RRSP (HBP) is a smart, interest-free way to fund your down payment using your own retirement savings. Here’s a simple, practical guide with clear HBP guidelines, real examples, and tips for 2025—no jargon, just easy-to-follow advice.
1. What is the Home Buyers’ Plan (HBP)?
The Home Buyers’ Plan RRSP allows you to withdraw up to $60,000 from your RRSP—per person—as a tax-free “loan” to buy or build a qualifying home in Canada. Couples can access up to $120,000. Withdrawals aren’t taxed immediately, but you must repay them over 15 years.
2. Why Use the HBP?
- Boost your down payment: $60,000 can help you reach 20% down, avoiding costly mortgage insurance.
- Interest-free borrowing: You’re paying yourself back, not a lender.
- Tax benefits: RRSP contributions give you tax deductions now; repayments just restore your account balance.
- Lower risk: A larger down payment means smaller monthly payments and better mortgage terms.
3. Are You Eligible?
You qualify if:
- You’re a first-time homebuyer (haven’t owned or lived in a home you owned in the past four years).
- You have a written agreement to buy or build a qualifying home in Canada.
- You’re a Canadian resident and plan to live in the home within one year.
- The RRSP funds have been in your account for at least 90 days.
- Special rules may apply if you have a disability or are buying for a disabled relative.
4. Step-by-Step: How to Use HBP
a. Save in Your RRSP
- Contribute by March 1 of the purchase year.
- Funds must stay in your RRSP for 90 days before withdrawal.
- The 2025 contribution limit is $32,490, plus unused room from previous years.
b. Withdraw Under HBP
- Use CRA Form T1036 to withdraw funds—up to $60,000 per person.
- Withdraw within 30 days before or after closing.
- No tax is withheld on amounts up to $60,000.
c. Home Purchase Requirements
- The property must be your principal residence and you must move in within 12 months.
- Vacation homes or cottages don’t qualify unless used as your primary residence.
d. Repay Over 15 Years
- Repayments begin five years after withdrawal.
- Minimum repayment is one-fifteenth annually—for example, $4,000 per year on $60,000.
- Setting up automatic payments helps avoid penalties.
5. Maximizing the Advantage
- Combine with FHSA: You can pair HBP with a First Home Savings Account for up to $100,000 in down payment funds.
- Use your tax refund: Contribute to your RRSP, claim the deduction, then withdraw under HBP.
- RRSP loan strategy: Some banks offer RRSP loans, allowing you to contribute, claim deductions, and then withdraw using HBP.
- Time it carefully: Plan your RRSP deposits to ensure the 90-day rule doesn’t delay your purchase.
6. Real-Life Case Studies
- Toronto couple: Withdrew $120,000 combined, used toward a $600,000 home, and set up $8,000 annual repayments.
- Montreal buyer: Withdrew $50,000 and combined with FHSA to fund a $90,000 down payment, repaying $3,333 per year.
- Vancouver solo buyer: Withdrew $60,000 to avoid mortgage insurance, repaying $333 per month through automated deposits.
7. Common Mistakes to Avoid
- Missing repayments—CRA adds missed amounts to your taxable income.
- Withdrawing before the 90-day rule is met.
- Over-withdrawing above $60,000 (extra amounts are taxed).
- Withdrawing outside the 30-day closing window.
- Failing to move in within one year.
8. Bottom-Line Benefits
- Larger down payment = lower mortgage and better terms.
- Interest-free—you’re borrowing from yourself.
- Flexible—withdraw within 30 days before or after closing.
- Tax-smart—deduct contributions, grow savings tax-free, repay on your schedule.
9. Final Takeaways
The Home Buyers’ Plan RRSP lets you access up to $60,000 per person, tax-free, for your first Canadian home purchase. Following the HBP guidelines—eligibility rules, withdrawal timing, and 15-year repayment—ensures you maximize the benefits. Combine HBP with the FHSA and smart tax planning to stretch your buying power even further.
Stay organized with contributions, forms, and repayment schedules, and this strategy can make your first home purchase more affordable and less stressful.
Source : fulinspace.com