How To Use Your RRSP To Jumpstart Your Homeownership Dreams?

Let us start with some facts; according to a report published in December 2022, the average Canadian must work full-time for 27 years to save up a 20% down payment. Just to give you an idea, this is 21 years more than what their parents had to save. So, what changed?

It was declining housing affordability combined with an ever-increasing immigration count. Now mix in low housing supply and increased demand due to low-interest rates during the Covid-19 lockdown, and you will be where we are today.

Suffice it to say that as a first-time home buyer in Canada, you will need all the help you can get to save up for that down payment, and that’s where the Home buyers plan comes in.

Never Heard of It?

Introduced in February of 1922, the home buyers plan (HBP) is a simple program that allows first-time home buyers to withdraw up to $35,000 from their RRSP short for Registered Retirement Savings Plans. You can then use this amount towards the purchase or building of a home. Here’s the best part you get 15 years to pay it all back, which starts from the second year of withdrawal, and the amount is absolutely tax-free for that entire duration. This means that through RRSP you can save for that down payment from the moment you get a job as long as it is not a locked-in or a group RRSP.

Fantastic! Where Do I Sign?

Provided that you satisfy the HBP’s eligibility requirements, all you need to do to withdraw money from your RRSP is fill out Form T1036. After completing Section 1, you can hand this document over to the RRSP provider, who is responsible for completing Section 2. Once the RRSP issuer has processed your request, it will take 2 to 4 weeks for the amount to be released, depending on the method of payment chosen by you.

However, the time it takes for the RRSP issuer to complete the withdrawal request and for the funds to be issued after submitting Form T1036 are both variables. If you want a more precise time frame, then make sure to confirm it with the RRSP provider directly.

Got It, So…Am I Eligible?

The home buyers plan designed to help out first-time home buyers from all walks of life. That is why its eligibility criteria are pretty inclusive. That being said, there are still certain conditions that need to be met to be eligible for the HBP, which are as follows:

1. You must be considered a first-home buyer, meaning you must not have owned a home for the past 4 years. This 4 year period starts from January 1st of the fourth year before withdrawal and ends 31 days after you take the money out. For example, if you’re taking money out of your RRSP on July 31st, 2022, the four-year period would be from January 1st, 2018 to June 30th, 2022. 

However, if you are a person with a disability or are using your RRSP to help a relative with a disability, then this rule does not apply to you. It also doesn’t apply in cases where the ownership of your last home belongs to your current spouse or common-law partner.

2. A written agreement outlining the terms and conditions of a real estate transaction is required to meet the program’s requirements. After purchasing or constructing a qualifying house, you must move in as your primary residence within a year. Finally, you must be a Canadian resident at the time of your RRSP withdrawal under the HBP and until the time a qualifying house is purchased or constructed.

Anything Else I Should Know Before I Go?

01The 89 Days

To ensure that the funds being withdrawn from RRSP are genuine contributions and not just a transfer of existing funds, this rule requires applicants to contribute to their RRSP 89 days before the date on which they plan to withdraw. For example, if you plan to withdraw funds from your RRSP on June 30th, you would need to contribute to your RRSP no later than April 2nd of the same year. 

During that time, you cannot deduct the excess of your RRSP payments over the RRSP’s fair market value immediately following the withdrawal. If you contributed to your spouse’s or common-law partner’s RRSP within 89 days of that person withdrawing from the same RRSP under the HBP, the same regulations apply.

02Multiple Withdrawals

Suppose your repayable HBP balance on January 1st of the year of the withdrawal is zero, meaning that you have fully repaid any previous HBP withdrawals. In that case, you may be eligible to participate in the program again as long as you meet all the other HBP eligibility conditions, such as being a first-time homebuyer.

Is That It?

Yes, that was everything you need to know about using your RRSP to buy the house you always wanted. As long as you budget your repayments and plan your withdrawal according to the 89 days clause, you should be all set. Make sure that your repayments do not exceed the 15-year term, as otherwise, the collateral interest charged will be considerably high. Connect with a real estate expert like the ones we have at The Canadian Home to better plan for that. Before you apply for HBP you need to find the right home, and The Canadian Home, with over 6M properties at its disposal, can help you hit right on that mark.