could use an RRSP (registered retirement savings plan) to
apply to the purchase of your home. Find out more about "Home Buyers' Plan" (HBP).
Using an RRSP for Down Payment
The Canadian Federal Government introduced the "Home Buyers'
Plan" (HBP), which allows RRSP
planholders who are also first time home buyers to withdraw up to
$25,000 of their registered retirement savings plans (RRSPs) to apply
to the purchase or build a qualifying home.
The home can be for you, or it can be for a related person with a
disability. If the home is acquired by a person with a disability or for
a related person with a disability, one of the following should apply:
- it is more accessible to that person than his or her current home; or
- it is better suited to that person's needs.
As an HBP participant, you can acquire the home for the related
person with a disability, or you can provide the withdrawn funds to the
related person with a disability to help them acquire the home.
Up to two partners in the home can combine their RRSP's for a total maximum of
$50,000. The only subsequent requirement is that they pay the withdrawals back into their
plans (without further deductions) over a maximum of 15 years. Failure to do so will
result in 1/15th of the RRSP initially withdrawn having to be added back to taxable income
in any year the minimum re-deposit is not made.
A loan for the RRSP to be used as your down payment allows you, in effect, to borrow
your down payment over the next 15 years.
NOTE: Situations may arise where the repayments may have to be made in less than 15 years. These situations are explained in Special Repayment Situations.
One very good feature of the HBP, exploited by several of the major financial institutions
(usually in cooperation with major Real Estate chains), is the ability to borrow money to
top up your RRSP plan using accumulated RRSP eligibility limits. If your tax assessment
notice indicates you are eligible for, say, $19,000 in contributions in the current year, and
you already have $9,000 in a self-directed plan, these institutions will lend you - subject to
a credit check - the $16,000 to buy the RRSP required to bring you up to the $25,000 HBP
limit. You may wish to borrow the whole eligible amount to obtain the maximum tax deduction.
The idea is then to claim the eligible deduction against your current year's income in order
to get a large tax rebate. This rebate can then be used either to pay down the loan, or
applied to the cost of buying the home. Here, of course, the amount of tax you're paying
each year is an important factor. If the $19,000 deduction in this example results in, say, a
$6,000 tax rebate, then that's all the "free cash" you actually net from the process.
Here's the catch for those thinking of borrowing the money for the maximum RRSP:
Unless you're planning to repay the RRSP loan quickly, or are able to extend the terms significantly
this has the effect of greatly increasing the monthly payment, thus decreasing the
chances of qualifying for a mortgage because of much higher "total debt servicing ratio".
Keep in mind that you (the participant) can only withdraw funds from an RRSP under
which you are the annuitant. In the case of spousal or common-law
partner RRSPs, the annuitant is the person who will receive benefits
from the plan. For more information about spousal or common-law partner
RRSPs, see Guide T4040, RRSPs and Other Registered Plans for Retirement.
NOTE: Some RRSPs, such as locked-in or group RRSPs, do not
allow you to withdraw funds from them. Your RRSP issuer can give you
more information about the types of RRSPs that you have and whether or
not withdrawals can be made from these plans to participate in the HBP.
Home Buyers’ Plan (HBP) Request to withdraw funds from an RRSP - Form T1036