First Time Condo Buyer? How to Use Your RRSP as a Down Payment
Yep, that’s right...you might’ve thought your RRSP’s (registered retirement savings plan) were somewhat untouchable until you retire, but under Canada’s Home Buyers’ Plan (HBP), you might be eligible to use your RRSP savings to purchase your first home, penalty-free
Of course, with anything government-related (HBP included), there’s a little bit of fine print you should understand.
First of all, to use your RRSPs for real estate you must be considered a first-time homebuyer. But, it’s important to note that even those who’ve owned property before can (once again) be considered first-time homebuyers in the eyes of the government.
Here’s the Government of Canada’s definition of a First Time Home Buyer under the HBP.
Who is Considered a First-Time Home Buyer?
According to the Government of Canada’s website, you’re considered a first-time home buyer if, in the four-year period, you did not occupy a home that you or your current spouse or common-law partner owned.
According to the Government of Canada’s Website, the ‘four-year period’ “begins on Jan 1st of the fourth year before the year you withdraw funds.” And, “ends 31 days before the date you withdraw the funds.”
Other Eligibility Requirements
So, aside from being a first-time homebuyer (as defined above), you also need to have entered into a contract to either buy or build a ‘qualifying home’.
In other words, you can’t withdraw funds with the intention of buying or building. You need a contract in place prior to making the withdrawal.
You have to be a resident of Canada at the time of the withdrawal.
And, you must intend to occupy the home as your principal residence within one year of building or buying it.
How Much Can I Withdraw from My RRSP Under the HBP?
You can withdraw a maximum of $25,000, As a couple, you could each withdraw $25,000 for a total withdrawal of $50,000.
The withdrawal must be made in one calendar year, and the required funds must have been held in the RRSP for 90 days or more.
In other words, you can’t deposit money into your RRSP to get a tax benefit, then withdraw them under the Home Buyers Plan the following week.
How To Make an RRSP Withdrawal Under the HBP Plan?
Generally speaking, the holder of your RRSP (your bank, your investment brokerage, your credit union, etc) will guide you through the withdrawal.
If not though, each withdrawal will require completion of Form T1036 titled Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.
In addition to answering a number of questions, Form T1036 requires your social insurance number, the address of the ‘qualifying home’, the amount being withdrawn, the account number, your signature, and the signature of the RRSP issuer.
Is There a Catch to the Home Buyers’ Plan?
You do have to repay the funds borrowed from your RRSP under the HBP.
Because contributing to your RRSP in the first place earned you a tax benefit. If you failed to repay these borrowed RRSP funds, it makes sense you’d have to repay the original tax benefit too.
The good news, though?
You have a really really long time to make repayments.
Home Buyers Plan Repayment
You can take as long as 15 years to repay funds withdrawn under the HBP. There’s also no restriction on speeding repayment - you can repay the entire balance anytime.
After withdrawing $25,000 as an example, taking 15 years to repay, mean you’d owe $1,667 per year or $139 per month.
Banks, like RBC, make repayment incredibly easy too. You can use their RSP-Matic - an automatic RRSP contribution program. You can set RSP-Matic for monthly, bi-weekly or even weekly contributions - ensuring you never forget!
And, it’s important to note that repayment doesn’t impact your regular RRSP deduction limits.
When to Start Making HBP Repayments?
Your repayment period begins the second year after you withdrew the funds.
As an example, withdrawing funds in July 2019 means your repayment begins in 2020.
The Advantages of Using the Home Buyers’ Plan
The biggest advantage of using the HBP is that it might offer you a downpayment or help beef up the downpayment you already have saved.
And, you still maintain the original tax benefit you received when contributing to your RRSP in the first place.
It’s also a bonus that using RRSP’s as a downpayment moves the cash into housing equity. After repayment, you’ll have housing equity and RRSP savings.
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