This time of year, you are probably hearing a lot about the importance of saving for retirement through tools such as RRSPs. But did you know that RRSPs are also a great tool that you can use if you are a first-time home buyer?
That’s right! Through a federal government program called the Home Buyers’ Plan (HBP), first-time homebuyers may borrow up to $25,000 tax free from their RRSP for a down payment. If you are married, both you and your spouse may borrow from your RRSPs for a total of up to $50,000.
Keep in mind however, since this is considered a loan, you must pay back what you borrowed within 15 years – otherwise you will be taxed like you would a regular withdrawal from your RRSP.
Who is considered a first-time homebuyer?
For the purposes of qualifying for the HBP, you are considered a first-time home buyer as long as you or your spouse have not owned a home within the previous four years. Also, the home you buy must be your primary residence for at least one full year. If you have used the HBP in the past, any loans must have been paid in full in order for you to participate in the program again.
How to participate in the HBP
In order to borrow money from your RRSP for a down payment on a home, any money that you borrow must have been put into your RRSP at least 90 days before the withdrawal. The withdrawal must be made within 30 days after you take the title of the home.
In order to apply for the HBP, visit Revenue Canada’s website and download a copy of Form T1036. You must fill out section 1 and then give the form to your financial institution (where you have your RRSP) for them to fill out section 2. Remember, that you must include the information about how much you withdraw when you file that year’s taxes.
Finally, within two years of making the withdrawal for your down payment, you must begin paying the money back into your RRSP. Your Notice of Assessment will help you keep track of how much you have paid back.
Saving up for a down payment on a home can be a challenge, but if you have RRSPs it can be considerably easier. So why not use your RRSPs to help get you into your first home!
To learn more about the Home Buyers’ Plan, contact Akal Mortgages today!
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