Using Your RRSPs to Purchase a Home
When looking at purchasing or building a home, the biggest worry for buyer's is where to find the money for a down payment. A 20% down payment of the purchase price of the home is typically required. If 20% is not feasible, a 5% option is available. At 5%, you are required to have mortgage insurance through CMHC in order to qualify.
Regardless of the down payment percentage, the Government of Canada allows home buyers to use their RRSPs to purchase a home. There is no penalty for making this withdrawal. This government program is called Home Buyer’s Plan (HBP).
Before you make a withdrawal, the following conditions must be met:
1) You must be a resident of Canada.
2) The maximum amount for withdrawal is $35,000.
3) The RRSPs must be repaid within 15 years.
4) Each year, you must repay the amount specified on your notice of assessment from the previous tax year. If not repaid, it will be included as income.
5) Repayment starts the second year that you made your RRSP withdrawal. For example: withdrawal in 2022, begin payments in 2024
There are lots of nuances. Even if you have previously owned a home, you may be eligible to participate if you have not owned a primary residence in the past four years. The application process seems daunting but a little research now could save you lots of money in the long run. If you're unsure if you are eligible or need assistance, contact your accountant to see if the HBP might be a good option for you.
Details of the plan could change. Please check the Government of Canada's website for the most up to date information on the HBP.
Leave A Comment