Tapping into your RRSP account is one of the most effective ways to receive financing for your first home. To give you a good and thorough understanding of this program, we’ve answered some of your most common questions in this blog.
What is the RRSP Home Buyer’s Plan?
The RRSP Home Buyer’s Plan is a program created by the federal government. It allows first-time home buyers to withdraw up to $25,000 from their registered retirement savings plan (RRSP) in order to help finance their home purchase or the construction of their first house.
Do I have to pay back the amount that I took-out from my RRSP?
Yes, the $25,000 that you receive from your RRSP for the purpose of purchasing your first home is a loan that needs to be repaid within a period of 15 years. Each year, you will receive a notice of assessment from the CRA (Canada Revenue Agency) which will include a statement that identifies the amount that you have already repaid, as well as the remaining balance.
When do the repayments start?
Your repayment period officially starts the second year after the tax year you made your initial withdrawal. This means if you used the HBP to help buy or build a home in 2018, you won’t need to start paying back what you borrowed until 2020. However, you may choose to start your repayments earlier which will reduce the amount you owe for the first year and will not affect your 15-year deadline.
What happens if I don’t pay the full amount after 15 years?
If you do not pay-back the full amount after your 15-year deadline, you will subject to a tax penalty. To avoid this from happening, we advise our clients to set-up automatic monthly, bi-weekly or even weekly contribution to your RRSP, to ensure that you do not miss any repayments.
How do I withdraw funds from my RRSP under the Home Buyer’s Plan?
To withdraw funds from your RRSP under the HBP, you will first have to fill out the Request Form T1036 and hand it over to your RRSP issuer for completion. It’s important to note that any funds you withdraw for the homebuyers’ plan must be in your account for 90 days prior to your withdrawal.
Don’t forget that you must make the withdrawal within 30 days of taking title of the home. If you try to make the withdrawal more than 30 days after you take title of the home, your withdrawal will no longer be eligible for the HBP and you will be taxed on the amount you withdraw.
To get a more detailed understanding of the RRSP Home Buyers Plan and how you can apply for this type of loan, contact our mortgage professionals today!