One great source of funding for your mortgage down payment is a Registered Retirement Savings Plan (RRSP). The Canadian government’s Home Buyers’ Plan (HBP) allows you to borrow up to $25,000 from your RRSP for a down payment, tax-free. However, since the HBP is considered a loan, it must be repaid within 15 years.
To learn more about the eligibility requirements and repayment term, watch the video below.
In order to be eligible as a first-time homebuyer, you must meet the following criteria:
• Not owned a home within the previous four years
• Sign a written agreement to buy a home
• Intend to live in the home within one year of purchase
• If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due
• You must make the withdrawl from your RRSP within 30 days of taking title of the home
• You must buy the home before October 1st of the year after you made the withdrawal
If you are buying with a partner, each spouse needs to qualify as a first-time homebuyer, in order for you both to withdraw from your individual RRSPs. For example, if you have owned a home in the last four years but your spouse has not, then your spouse would be able to withdraw money from their RRSP under the Home Buyers’ Plan, provided you and your spouse have not been living together in the home you owned.
If you make a withdrawal from your RRSP, but do not meet the first-time homebuyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax statement as taxable income. If both you and your spouse meet the first-time homebuyer eligibility requirements, each of you can withdraw up to $25,000 from your RRSPs for a total of $50,000.
In order to participate in the Home Buyers’ Plan, you must print off a copy of Form T1036. This form is available from Canada Revenue Agency’s website (www.cra-arc.gc.ca). You must fill out Section 1 then give the form to the financial institution that holds your RRSP so they can fill out Section 2. Your financial institution will send you a T4RSP form, which will confirm how much you withdrew from your RRSP as a part of the Home Buyers’ Plan. You must reference this form in your income tax return for the year you made the withdrawal.