How To Use Canada’s RRSP Homebuyers’ Plan to Purchase Your First Home

Purchasing your first home may seem out of reach, but there are ways to attain that goal, one of which is to use Canada’s RRSP Home Buyers’ Plan.

The Home Buyers Plan is an initiative by the Federal Government of Canada that allows Canadian homeowners to withdraw up to $35,000 from their RRSPs to fund the purchase of their first home.

Applicants must be looking to purchase a home for themselves or a relative with a disability and must have eligible funds in their RRSP. Couples or people looking to buy a home jointly can withdraw up to $35,000 totalling $70,000. Another bonus, the money withdrawn is tax-free.

While this program has the potential to be greatly beneficial, you need to thoroughly review the terms and conditions of the program to understand if it’s right for you.

You may ask yourself, “do I qualify for the Home Buyers Program?”.

Eligible Applicants Must:

  • Be a resident of Canada.
  • Have an RRSP with sufficient funds to withdraw.
  • Be a first-time home buyer. According to the Government of Canada, you are a first-time home buyer if, in the four-year period before you began participating in the HBP, “you did not occupy a home that you owned or one that your current spouse or common-law partner owned.”
  • Plan to use the home as your principal residence within a year of building or buying it, or be purchasing or building a principal residence for a relative with a disability.
  • Have a written agreement to buy or build a home for themselves or a relative with a disability.
  • Plan to purchase a qualifying type of house located in Canada. Most types of homes, including condos and apartments, qualify. Co-op housing doesn’t always qualify, but there may be exceptions.

How does the Home Buyers Plan work?

Once you’ve applied for the program and are approved, you can withdraw the funds from your RRSP. Funds must have been in your RRSP for at least 90 days prior to withdrawal. Then you have until October 1 of the following year to purchase your home.

RRSP Contribution Deadline for 2022 is March 1st, 2023.

You must repay the funds you withdrew from your RRSP within 15 years. The Canadian Revenue Agency will send you an account statement each year that shows how much you’ve paid back versus how much is left to be paid. Repayment starts two years after you make your first withdrawal.

NOTE: repayment does not contribute to RRSP deduction limits.

Is the Home Buyers Plan worth it?

This is where it’s up to you to make the decision that makes the most sense for your situation. There are pros and cons to utilizing this program, but ultimately, it’s up to you.

Pros of the Home Buyers Plan

  • The Home Buyers Plan is like an interest-free loan if you repay your funds according to schedule.
  • The Home Buyers Plan can increase your budget by $35,000, which can make it a lot easier to apply for a mortgage and purchase your first home.
  • The funds withdrawn under the Home Buyers Plan are tax-free, meaning that when you withdraw your funds, they won’t count toward your income taxes for that year.

Cons of the Home Buyers Plan

  • If you don’t already have thousands of dollars in your RRSP, the Home Buyers Plan won’t help you very much. 
  • You must make your yearly payments into your RRSP, otherwise, the Canadian Revenue Agency will tax your RRSP withdrawals.
  • Reducing your RRSP means losing out on potential tax-sheltered savings and investments.