What Is the Home Buyers' Plan (HBP)? Rules and Repayment

Owning a home is a significant milestone, representing financial security and personal accomplishment. For many, this dream requires years of saving and planning. However, tools like the Home Buyers’ Plan (HBP) can help make homeownership more accessible.

The Home Buyers’ Plan (HBP) is a Canadian government program that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to use as a down payment on their first home.

Eligibility Requirements

To participate in the HBP, you must meet the following criteria:

• Be a first-time home buyer: you did not live in a home that you or your current spouse or common-law partner owned as your principal residence at any time in the current calendar year before the withdrawal (other than the 30 days just before it) or in the preceding four calendar years.
• Have a written agreement to buy or build a qualifying home, and intend to live in it as your principal residence.
• Complete form T1036 for each withdrawal and give it to your RRSP issuer.

You must be a resident of Canada, and the HBP cannot be used for a rental or investment property. One timing detail: RRSP contributions made in the 89 days before an HBP withdrawal may not be tax-deductible, so plan contributions early. The full rules are on the CRA’s HBP conditions page.

Withdrawal Limits

Under the HBP, you can withdraw up to $60,000 from your RRSP (raised from $35,000 for withdrawals after April 16, 2024). If you’re buying a home with a spouse or common-law partner who is also eligible, you can each withdraw up to $60,000, totaling $120,000. These withdrawals are tax-free, provided you meet the repayment requirements.

Repayment Terms

You repay the withdrawal to your RRSP over up to 15 years. Repayment normally starts in the second year after the year of your first withdrawal. As temporary relief, if your first withdrawal was made between January 1, 2022 and December 31, 2025, repayment starts in the fifth year after the withdrawal instead (a 2023 withdrawal, for example, starts repayment in 2028), according to the CRA’s HBP repayment rules. Each year’s minimum is generally one-fifteenth of the amount withdrawn, and repayments go back into your RRSP.

Accessing Your RRSP for a Down Payment

One of the key benefits of the HBP is the ability to access significant funds for your down payment. This can be especially helpful given the high cost of homes. The HBP allows for up to $60,000 (or $120,000 for a couple) to be withdrawn from your RRSP, providing a substantial portion of your down payment.

This effectively serves as an interest-free loan from your own retirement savings, with the added benefit of a 15-year repayment period, making it more manageable than traditional loans. Additionally, these funds are not subject to income tax when used for your home purchase, avoiding immediate tax liabilities.

Is the Home Buyers’ Plan Right for You?

While the HBP can be a great tool for aspiring homeowners, it’s essential to consider whether it aligns with your financial situation and goals. Here are some questions to ask yourself:

• Are you eligible for the HBP?
• Do you have sufficient funds in your RRSP to make the HBP worthwhile?
• Will the HBP enable you to achieve your homeownership goals?
• Can you meet your retirement goals while using the HBP?
• Can you make the annual HBP repayments without them being added to your taxable income?

If you answered yes to these questions, the HBP might be a suitable option for you. If unsure, consulting with a mortgage broker can help clarify your mortgage eligibility and direct you towards the best financing options. Contact Mortgage Squad Advisors today to start the pre-approval process and determine the ideal down payment for your situation.

Frequently Asked Questions

What happens if I don’t repay my Home Buyers’ Plan? Any required annual repayment you don’t make is added to your taxable income for that year, so you pay tax on it at your marginal rate. That amount can’t be repaid to the HBP later, which also reduces your retirement savings.

What are the benefits of the Home Buyers’ Plan in Canada? The HBP allows first-time homebuyers to withdraw up to $60,000 ($120,000 for a couple) from their RRSP tax-free. It serves as an interest-free loan, repayable over 15 years, providing a significant source of funds for a down payment and making homeownership more accessible.

How long do you have to repay the Home Buyers’ Plan? Up to 15 years. Repayment normally starts in the second year after your first withdrawal, or the fifth year if your first withdrawal was made between January 1, 2022 and December 31, 2025.

Final Thoughts

The Home Buyers’ Plan is a valuable tool for first-time homebuyers, offering a way to leverage your RRSP for a down payment while maintaining tax advantages and flexible repayment terms. By understanding the eligibility requirements, withdrawal limits, and repayment rules, you can make an informed decision about whether the HBP is right for you. For personalized advice and assistance with your mortgage needs, reach out to Mortgage Squad Advisors today.