Buying a home is always a popular and common goal. And it makes perfect sense.
Owning a residence creates long-term stability — you don’t need to worry about your rent increasing or your apartment building being sold. It’s also a path to making a home you truly want to live in. You have the power to decorate, expand, and otherwise change your space so it provides exactly what you want out of your home.
Homeownership, whether you buy or build, is also an excellent way to build equity. Home prices tend to rise in the long term. You’ll build a valuable asset as you pay down your mortgage and increase your direct ownership of your house.
Affordability is among the most common concerns for prospective homeowners, especially first-time home buyers. Fortunately, the Canadian Government has a plan in place to make things a little easier for individuals and families in search of their first home: the Home Buyers’ Plan.
It’s a simple concept: having more money makes it easier for you to purchase a home. The Home Buyers’ Plan allows you to access funds you’ve already earmarked for retirement and direct them toward another important, long-term investment.
Understanding the Home Buyers’ Plan
Foundational Concept of the Home Buyers’ Plan
In simple terms, the federal Home Buyers’ Plan (HBP) gives you the power to borrow money you’ve already invested into a Registered Retirement Savings Plan (RRSP) and use it for purchasing a home, generally for the down payment. You have the option to buy or build, and the home can either be intended for you or a related person with a disability.
The process is somewhat more defined — and complicated — than those two sentences might have you think, however. Going into somewhat more detail can help you understand eligibility, limits on withdrawals of money from your RRSP, and how to make the most of this benefit.
Home Buyers’ Plan: Eligibility and Terms
Who Can Participate?
The Home Buyers’ Plan is open to anyone considered a first-time home buyer under the definition set by the Government of Canada. Depending on your circumstances, you may be able to use the Home Buyers’ Plan even if you’ve already owned a home in the past.
The HBP refers to “first-time home buyers” extensively. However, the plan is open to any Canadian resident who has not occupied a home owned by themselves or a spouse or common-law partner in the four years before purchasing a home through the plan.
The actual definition is a bit more involved — that term doesn’t always cover exactly four calendar years or 48 months. The Home Buyers’ Plan definitions page, which is a great source of details about this program, can help you determine if you fall into or out of that four-year time period.
One more thing to keep in mind: The home must become your principal residence within a year of the purchase to qualify.
Total Amount You Can Borrow Under the Home Buyers’ Plan
You can withdraw funds from your RRSP up to a maximum of $35,000 or $70,000 for couples when both individuals qualify. You must make the withdrawal in a single calendar year. The Revenue Agency of Canada has more information on this topic, including a Home Buyers’ Plan withdrawal form.
Any money you withdraw from your RRSP must first remain in that account for at least 90 days. This is sometimes called the Home Buyers’ Plan 90 Day Rule. Keep in mind that if you want to increase RRSP contributions with the intent of using those funds under the HBP, you’ll need to plan ahead.
How to Repay the Home Buyers’ Plan
You are required to repay any money borrowed over a 17-year repayment period. That includes two years where payments aren’t required, starting immediately after your purchase, and 15 years where they are.
Home Buyers’ Plan repayment is relatively straightforward. You must meet a minimum payment each year and can contribute more without penalty. If you can’t make part or all of the repayment in a given year, you must declare it as income on your income tax and benefit return.
Moving Forward with Your New Home
The Home Buyers’ Plan makes it easier for you to purchase a house, but it doesn’t replace the need for a home loan. Just like the HBP, our First Mortgage is designed to help first-time home buyers save money and realize their dream of homeownership.