What you need to know about the Home Buyers' Plan

For many first-time homebuyers, coming up with a down payment isn’t always easy, and can delay the process of owning a home. The good news is that the Canadian government offers many financial incentives to first-time buyers to help them enter the market. One in particular is the Home Buyers’ Plan (HBP).

The HBP is a program that allows you to withdraw money from your Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home for either yourself or a relative with a disability. Participating in this program gives you the opportunity to tap into additional funds to put toward your down payment, and then later re-contribute into your RRSP within a 15-year period. Not only does the HBP help you come up with more funds for your down payment, but it also lowers your mortgage amount and monthly expenses.

Eligibility

It’s important to note that the Home Buyers’ Plan isn’t for everyone. There are specific criteria that you must meet to qualify for the program, including:
• You must be considered a first-time home buyer
• You require a written agreement to buy or build a qualifying home, either for yourself or for a family member with a disability
• You need to be a resident of Canada when you withdraw funds from your RRSP under the HBP and up to the time a qualifying home is bought or built
• You must intend to occupy the qualifying home as your principal residence within one year after buying or building it

Maximum withdrawal

The Home Buyers’ Plan allows you to withdraw up to $35,000 from your RRSP, tax-free. If you’re buying your first home with your partner or another first-time home buyer, then you can both access $35,000 from your RRSP for a combined total of $70,000 toward your down payment. However, one thing to keep in mind is that the HBP is considered a loan, and it must be repaid within 15 years.

Withdrawal rule

This rule indicates that any amount of money you withdraw must have been in your RRSP for at least 90 days. If the money doesn’t sit in your RRSP for at least 90 days before being withdrawn, it may not be tax-deductible for that fiscal year.

Repayment schedule

Your first repayment is due two years after you make your withdrawal, and the full amount must be repaid within 15 years. Although there are minimum repayment requirements, you can begin making payments any time, or repay it in full, with no penalties. If you do pay more than the minimum, your remaining balance for future years will then be reduced. In the event that you don’t repay the expected amount, the government will treat the amount as income for that year and tax you on it.

If you don’t meet all of the qualifying conditions of the HBP, don’t worry. There are other helpful programs available to first-time homebuyers:

First-Time Home Buyers Incentive

This is a shared equity program that helps Canadian homebuyers purchase their first home. It offers five per cent on the purchase price of resale properties, and 10 per cent for new builds, to put toward a down payment. Those participating in this program must then pay this money back interest-free to the Canadian Mortgage and Housing Corp. within 25 years of their purchase, or once the property is sold.

Land Transfer Tax Rebate

When buying a home, there are land transfer taxes that need to be paid. What many don’t know is that first-time homebuyers can actually receive a rebate for this. However, how much you can qualify for depends on where you live. In Ontario, eligible buyers can receive a rebate equal to the full amount of their land transfer tax, up to a maximum of $4,000. Torontonians are even eligible for greater savings, as there is an additional municipal land transfer tax that you can receive a rebate for.

As a first-time home buyer, it’s important to be in the know about all of the different programs available to you, as well as the various mortgage options and lenders out there. That’s why connecting with an expert mortgage advisor like those on our team at Homewise is a great first step. You will be able to navigate the process better and receive the guidance you need to make more informed decisions when it comes to your mortgage.