Using Your RRSP for a Home Downpayment

Using Your RRSP for a Home Downpayment at Key Momentum Mortgages Ltd.

Are you thinking of buying a home and wondering how you'll come up with the downpayment? Did you know that the government of Canada offers a program called the Home Buyer's Plan (HBP) that allows for using your RRSP for a home downpayment?

Qualification for the HBP (Home Buyer's Plan)

To qualify for the HBP, you must be a first-time homebuyer, which means you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. However, there are some exceptions. If you have a disability or you're helping someone with a disability, you can withdraw from an RRSP for a home purchase at any time.

It's essential to understand the fine print when it comes to the HBP qualification. Suppose you're buying a home with your spouse, and you both meet the first-time homebuyer requirement. In that case, you can both use the HBP program, but the total amount you can withdraw together is still $70,000. Also, if you're a first-time homebuyer but not a Canadian citizen, you can still use the HBP program if you're considered a resident of Canada for income tax purposes.

Repayment of RRSP

Once you withdraw funds from your RRSP through the HBP program, you have 15 years to pay it back, starting the second year after the withdrawal. While you won't pay any tax on the withdrawal, there are conditions you'll have to meet. You'll have to pay back the total amount you withdrew over 15 years, with annual repayments of 1/15 of the total amount withdrawn. You can choose to repay more than the minimum amount each year or make a lump-sum payment.

The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. It's crucial to note that your repayments will not count as contributions because you've already received the tax break from those funds.

Access to Funds

You can access up to $35,000 individually or $70,000 per couple through the HBP program. The funds you withdraw from the RRSP must have been in your account for at least 90 days before you can use them. It's important to note that if you withdraw money from your RRSP without using the HBP program, you can still use it for your downpayment, but it won't be tax-deductible and won't be part of the HBP.

One significant advantage of using the HBP program is that you can use your RRSP to fund your downpayment without incurring any tax consequences. However, it's essential to remember that you'll have to pay back the funds over time. Also, the funds you withdraw will not be invested in your RRSP account, so you'll miss out on any potential investment gains.

If you're planning to buy your first home and need help coming up with the downpayment, the Home Buyer's Plan (HBP) program is an option to consider.

However, it's essential to understand the qualifications, repayment conditions, and access to funds before making a decision.

If you have any questions about the HBP program or are planning on using your RRSP for a home downpayment, please don't hesitate to connect with Key Momentum Mortgages Ltd. We're here to help make the home buying process as smooth as possible for you.

Laura Mackie | Key Momentum Mortgages Ltd. Langley Mortgage Broker
Laura Mackie | Key Momentum Mortgages Ltd. Langley Mortgage Broker

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Laura Mackie, AMP | Mortgage Broker
Key Momentum Mortgages Ltd.

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