August 25, 2020

Buying a home: have you considered the HBP?

Are you looking to buy a property yet would like to have some help in obtaining a larger down payment? The Home Buyers’ Plan (HBP) could be your solution.

What is the HBP?

The HBP is a federal government program that allows you to use up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP) to buy your first home. For example, both spouses could each withdraw $35,000 to obtain an amount of $70,000.

To participate in this program, you must meet certain eligibility requirements. You must be considered a first-time home buyer and have a written agreement to buy or build a qualifying home.

How does it work?

You must be a resident of Canada when you withdraw funds from your RRSP. It is possible to withdraw funds from more than one RRSP so long as you repay each RRSP.

Moreover, funds must remain in the RRSP for at least 90 days before you can withdraw them. Otherwise, you will be taxed on amounts withdrawn before the 90-day period is over.

You will then have 15 years to pay back your RRSP, with no interest being charged. You must repay at least 1/15 of the loan each year. You also have the choice of repaying it sooner.

Home Buyers’ Plan: good or bad strategy?

There is no right or wrong strategy. What is important is to choose a strategy best suited to your situation and needs. Many people are unaware that they have enough money in their RRSP to benefit from it, especially under the HBP.

The minimum down payment required is 5%. However, you could add to your down payment using the HBP and make a down payment of 20%, which would exempt you from CMHC mortgage loan insurance penalties.

To learn more about this program, visit the Government of Canada website. You might be able to buy your first home sooner than you think!

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