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Leverage your RRSP for the down payment on your first home - expert tips from Toronto Mortgage Broker Ingrid McGaughey

Leverage your RRSP for the down payment on your first home

Buying your first home? Wishing you’d saved more?

Maybe you have, but didn’t know it. There are several programs to help first-time buyers get into home ownership.  The Home Buyers’ Program, or HBP, allows you to access RRSP money to purchase your first home.

Why do it?

The most obvious reason is to boost your down payment.  The bigger your down payment, the smaller your mortgage – and therefore, your monthly mortgage payments.  Also, if you contribute more than 20% toward the purchase, you can avoid the costs of a high ratio mortgage.  And, you may have more flexibility with mortgage options such as getting longer amortizations and the corresponding lower payments.

How to use your RRSP to help you buy your first home…

If you’ve been contributing to an RRSP, you are already aware that you can reduce your income tax payable and shelter your savings until retirement.  Being able to use the funds for a down payment when you purchase your first home is another bonus.

Normally, if you withdraw from your RRSP, you will be taxed on the withdrawal as if it was income for the current year.  Under the HBP,  you are allowed to withdraw your RRSP money tax-free, provided you return the funds in equal payments over the next 15 years. (And make sure, of course, that your RRSP is not a locked-in plan.)  You can withdraw up to $35,000 from your plan.  If your partner qualifies as a first-time homebuyer, then he or she will also be able to withdraw $35,000.  That $70,000 is enough to make a substantial difference in the affordability of a home.   Even in Toronto!  🙂

Conditions – aka the (not so) fine print

There are some conditions that you should know about. For example, you do need to enter into a written agreement to buy or build before you can withdraw money. And you are supposed to complete the home purchase no later than October 1 of the year following your withdrawal. In addition, all HBP-eligible withdrawals must be made in the same calendar year, AND you can’t have owned the home more than 30 days before the date of withdrawal. Above all, you must fulfill the repayment terms. Repayment to your RRSP has to begin the second year following the year of withdrawal. You have up to fifteen years to repay, and each annual repayment must be at least one-fifteenth of the total withdrawal, otherwise you have to include each repayment amount as income for that year.

As well, please note that the funds you want to withdraw must have been sitting in the RRSP for at least 90 days prior to withdrawal.  For example, you can’t make a $35,000 deposit to the RRSP on March 1st and expect to withdraw it before May 30th, without exposing yourself to penalties. The Globe and Mail published a great article about this a while back.

Who qualifies as a first-time home buyer?

As long as you haven’t owned a home in the last five years, you are considered a first-time home buyer under this program.  What if one partner has owned a home before?  If only one partner qualifies as a first-time homebuyer, you can still withdraw up to $35,000 from the qualified partner’s RRSP under the HBP.

Any kind of home qualifies for the program – detached, semi-detached, mobile, condominium, etc. – as long as it is located within Canada and will be your principal residence within one year.

Use your RRSP strategically when buying your first home

If you’re thinking of using your RRSP, consider meshing your RRSP strategy with your down payment savings and/or a TFSA. Putting away funds in your RRSP not only saves you the current income tax, but any tax refund translates into more dollars towards your down payment. If you have RRSP contribution room, you can make your contribution now and then after 90 days you can redeem your RRSP under  this plan, using your tax refund to bolster your down payment.

Check out my post for more details on smart RRSP strategies for first-time homebuyers, here.

The official HBP deets

Detailed info is available on the Canada Revenue Agency website. Look for the section, “What is the Home Buyers’ Plan“, which explains the ins and outs of the HBP.

To read more

For important information you need to know about preparing your down payment, click here.

To see my ideas on using your RRSP and other ways to buy your first home by 29 (or to just accelerate your home buying game plan), go here.

Tons of first-time homebuyer articles can be found throughout my blog.  I hope you find lots of information you can use.

And if you have questions, please get in touch with me to have a chat about your future plans for home ownership.  I’m happy to help.  A good plan is always a great beginning!

Photo credit: [c] nuttawan jayawan for



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