First-Time Homebuyers: How to Use RRSPs for a Down Payment
First-time homebuyers in Canada have a unique opportunity to use their Registered Retirement Savings Plan (RRSP) towards their down payment for a first mortgage. This government-approved program, known as the Home Buyers' Plan (HBP), allows eligible individuals to withdraw up to $35,000 from their RRSPs to purchase or build a qualifying home.
One of the benefits of using the HBP is that the withdrawn funds do not have to be paid back to the RRSP for up to 15 years, although yearly increments are required after a two-year grace period. This means that first-time homebuyers can use their savings for a down payment without having to worry about repaying it immediately, which may make it easier to afford a home. Additionally, because the funds are withdrawn using this First-Time Homebuyers program, the withdrawal is not subject to income tax at the time of withdrawal, which can save first-time homebuyers thousands of dollars. If the minimum yearly payments are not made after the two-year grace period, the amount required for those payments will be added back into income for that year, resulting in some tax, so it is advised to keep up the minimum payments each year to get the full benefits of the program.
To be eligible for the plan, the buyer(s) must be residents of Canada and first-time homebuyers, which is defined as someone who has not owned a home in the past four years, and is not married or common-law with a spouse who owned a home in that time. Additionally, the individual must intend to live in the home as their principal residence, and the home must be located in Canada.
It's important to note that the withdrawn funds must be used by October 1st of the year after they are withdrawn.
Also, if you are purchasing a RRSP to be used in this program, you will get a tax deduction when you file your taxes. This tax savings can be used to help your cash flow when making your purchase. The RRSP must be in place for at least 90 days before you can withdraw the funds under the HBP.
For more information, or to find out if the First-Time Homebuyers Plan is for you, schedule a call with your mortgage broker. A review of your current status, financial situation and opportunities could provide valuable insight into whether this plan could benefit you and your goals of homeownership.