If you are thinking about purchasing a home in 2019, you may be able to borrow up to $25,000 from your RRSP in order to help you make your down payment. Since it has become more difficult to purchase a home in recent years, due to rising house prices as well as the new federal financial stress test, the RRSP Home Buyer’s Plan (HBP) is becoming increasingly useful as a tool to get Canadians into their first homes.
The HBP allows you to borrow up to $25,000 from your RRSP within a calendar year to purchase a qualifying home. Multiple homeowners can participate together provided they meet all the criteria.
What conditions must be met to participate in the HBP?
In order to qualify for the HBP, you must be considered a first-time home buyer. This means, it must either truly be your first home or that you must not have owned a home within the past four years. You may also qualify for the HBP if you are helping a person with a disability purchase their first home.
In order for the home to qualify, you must intend on living there as your primary residence within a year of building or buying it. In the case of helping a person with a disability, they must intend on living there.
Important time periods to note.
In order to qualify for the HBP when it is not your first home, you must not have lived in a home that was not owned by yourself, your spouse, or your common law spouse for at least four years prior to the RRSP withdrawal. The four year period begins January 1st of the fourth year and ends 31 days before withdrawing the funds.
You must also have the amount that you wish to withdraw in your RRSP at least 90 days before your make the actual withdrawal. Furthermore, you must own the qualifying home less than 30 days before the withdrawal and the home must be purchased before October 1st of that same year.
Repayments on the HBP.
When you are in the second year of owning your home, you must start making repayments back into your RRSP. A set amount for you to pay back will be designated each year. If you are unable to pay back that amount, then the amount not payed back will be designated as income for that year and you will be required to pay income tax on it.
Of course participating in the HBP has both its advantages and disadvantages. The HBP is useful for helping first time home buyers get into a house of their own, but borrowing from their RRSPs may affect their income in retirement. For this reason, it is good to consult with a financial advisor before participating in the HBP.
Would you like to learn more about the RRSP First-Time Homebuyer’s Plan? Then contact the team at Akal Mortgages today!
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