How to use your RRSP for a down payment

By Michelle Moon

Saving up a down payment for a home using your RRSP is a great way to speed up the process of becoming homeowners.

The Home Buyers Plan (HBP) allows each first-time home buyer to withdraw up to $25,000 from their RRSPs to purchase or build a home, without having to pay tax on that withdrawal.

Now, let’s break down the process!

What is the RRSP Home Buyers’ Plan (HBP)?

The loan is considered tax-free and you have 15 years to pay back the full amount. The Canadian government recently increased the borrowing limit to a maximum of $25,000 from your RRSP as an individual, and up to $50,000 from your RRSPs as a couple.

Who qualifies?

»You must be a first-time home buyer 
»You must have a document stating that you are buying or building a home for your own personal use in the same calendar year that you withdraw your RRSP money (under the HBP)
Be a resident of Canada

How Do I Withdrawl the Money?

»Take no more than $25,000 from your RRS
»Receive the full amount within one calendar year
Not be withdrawing from a group RRSP or locked-in RRSP
Keep the funds in your RRSP for a full 90-days before withdrawing
Fill out the Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.

The best option is to book an appointment with the financial advisor or bank manager where you hold your RRSP. Sit down and talk to this person about your plan to withdraw funds to purchase real estate. They should be able to provide you with the form and the next-step instructions on how to complete this process. Remember, you cannot simply withdraw money from your RRSP — you must fill out the official federal request form.

What are the advantages and disadvantages of using your RRSP?

Like all things, this program has its up and downs and its important to see if it works for you!

The advantages:
»You’ve already saved this money;
The money can be used stand-alone or you can add it to additional savings to really bump up your down payment
The withdrawal comes out tax-free and you will have 15 years to repay the loan;
The minimum monthly payment on the loan is one-fifteenth of the actual loan value. 

The disadvantages:
»You potentially miss out on 15 years of tax-sheltered growth (think compound interest) on the money you withdraw;
Neglect to pay the annual repayment and you get charged income tax (at your current marginal rate) on the one-fifteenth amount you should’ve paid that tax year;
You can not withdraw any RRSP money until it’s been in your registered account for at least 90 days;
Neglect to use the HBP money to purchase or build a house and you’ll be taxed on the full amount, at your marginal tax rate, of the withdrawal.