A quick guide to using your RRSP to buy a house
The Home Buyers' Plan was introduced as a way to assist first-time home buyers enter the housing market by allowing them to withdraw up to $25,000 from an RRSP to use towards the purchase of a principal residence. The following illustrates the basics of how the program works.
For first-time home buyers, one of the most difficult tasks can be accumulating the down payment. The federal government instituted the Home Buyers' Plan (HBP) as a program to assist first-timers to accomplish this task a little more smoothly.
By using the HBP, first-time buyers can withdraw up to $25,000 from a registered retirement savings plan (RRSP) to purchase a principal residence. The withdrawal is not taxed, but must be paid back to the RRSP within 15 years. A common question among Canadians who choose to utilize this program is how their repayments are distinguished from regular contributions to their RRSP. If, for example, the maximum withdrawal of $25,000 is used, a repayment of $1,667 per calendar year would be required. Therefore, any contributions over and above that amount would be counted as regular contributions. (It should be noted that any missed repayments are included in income for that tax year.) Another little-known fact about the HBP is that the funds do not have to be repaid to the financial institution where the RRSP originated. This gives the client some flexibility when repaying the loan.
For more information about the Home Buyers' Plan, contact an Ottawa Mortgage Broker.