You Just Might Have that Down Payment: RRSPs and The Home Buyers’ Plan

By Aleksandra Oleksak, The Real Estate Chick

It can be a struggle to save money these days, especially a down payment for your first home. While some may have the “Bank of Mom and Dad” to help out, others may not have that option.

That’s where your RRSPs can help save the day, if you have a decent amount stashed away. As a first-time buyer, you can call on your RRSPs a lot earlier, to help you out and get your foot in the door of homeownership. But before you do, make sure you know all the facts to see if it’s the right decision for you.

The Home Buyer’s Plan

The RRSP homebuyers plan allows an eligible first-time home buyer to withdraw a maximum of $25,000 from their RRSPs tax free, to use towards a down payment. If you are buying with your partner who is also eligible, then your maximum increases to $50,000 ($25,000 per person). If only one of you is eligible then the amount goes back down to $25,000. Before withdrawing the money, make sure that you are eligible; otherwise you will be taxed on the amount and will have to include it in your upcoming income statement, which is not fun.

How Do You Qualify?

There are several criteria that must be checked off before you can qualify as a first-time homebuyer and use your RRSPs for a down payment.

  • You cannot have owned a home in the last 4 years
  • You must sign an agreement of purchase and sale to buy a property
  • You must intend to live in the property within a year of the purchase
  • You cannot have an outstanding balance, if you used the home buyers plan in the past
  • The withdrawal must be made within 30 days of taking title of the home
  • The money has to be in the RRSP account a minimum of 90 days before being allowed to withdraw it

If you or your partner or both meet the above requirements, then you’re on the way to withdrawing from your RRSPs tax-free.

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Repayment

Now don’t forget, just because you saved the money into your RRSPs and used it for a down payment, it doesn’t mean you don’t have to pay it back–you definitely do. Luckily you have some time to re-save the money again; 15 years to be exact. Your first minimum payment will be due 2 years after you withdrew the amount and will amount to 1/15th of the total amount that you borrowed from yourself, which shouldn’t break the bank. If you fail to make your minimum payment every year or don’t make the full amount, the outstanding balance from the minimum payment will be taxed as income, so make sure to stay on top of your payments.

RRSPs can be a great option if you want to purchase a home and don’t have other money saved up. But don’t forget on top of your down payment there are also closing costs involved, and you will need the cold, hard cash for that too. Before making the decision to use your RRSPs towards a home purchase, you should always consult a mortgage professional to make sure it’s the right move for you.

Aleksandra Oleksak is Her City Lifestyle’s “Real Estate Chick,” and a Toronto real estate professional with Sage Real Estate. As @RealtyQueenTO, her real estate blog has been named one of the top 50 real estate blogs in Canada.

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