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Using Your RRSP as a Downpayment

If you're having difficulty putting together a downpayment to purchase a home, a special government program called the Home Buyers' Plan can help.

What is the Home Buyers' Plan?

The Home Buyers' Plan (HBP) is a federally instituted government program designed to assist "qualified" buyers in the purchase of a new home. As a "qualified" buyer, you are allowed to withdraw funds from your RRSP to use as a downpayment in the purchase of a home, without incurring a penalty.

Guidelines for using the HBP

Regardless of there being no penalties for withdrawing funds, there are certain guidelines that must be followed in order to use the HBP.

  • You may only withdraw a maximum of $20,000 from your RRSP.
  • There can be a maximum of two first-time buyers in the purchase of a new home, and each individual can withdraw up to $20,000 for a total of $40,000.
  • The purchased home must be owner occupied.
  • The RRSP must be repaid within 15 years with minimum annual payments of 1/15th of the withdrawn amount — failure to do so will result in 1/15th of the RRSP initially withdrawn having to be added back to taxable income in any year the minimum re-deposit is not made.
  • You must not have owned a home within the past 5 years immediately prior to participating in the HBP.

The HBP also permits you to establish an RRSP with borrowed funds, and then use the resulting tax refund for a down payment. (And, as you may have read in Qualifying for a Mortgage: The Four Factors, the size of your downpayment matters!) In this scenario, you would borrow funds that are contributed to an RRSP. After a 90-day period, the RRSP is collapsed to repay the loan. When you receive your tax refund, it can be applied to the purchase of a home. These funds are considered as an acceptable source of down payment provided that the tax refund is in your hands at the time of closing and the lender can verify that you have other, liquid assets equal to 5% of the purchase price.

Participating in the HBP multiple times

Until 1999, the program was available only once and you had to buy or build the qualifying home for yourself. However, the rules have changed.

You can participate in the HBP more than once in your lifetime. To re-participate in the HBP, your balance from your previous withdrawal must be fully repaid by the beginning of the year you want to re-apply. In addition, the federal government allows people with disabilities to participate in the Home Buyers' Plan to buy or build a more accessible home.