Most common questions about the RRSP Home Buyers Plan

Most people envision becoming homeowners, but this aspiration is faced with several challenges. The biggest hurdle, for instance, has been scrounging enough funds to make a sufficient down payment. 

In addition, the crippling levels of debt, access to credit and the current real estate market conditions make this entire dream of homeownership seem almost unattainable.

However, the Canadian government has provided its citizens with a source to help fund mortgage down payment for a home through the Registered Retirement Savings Plan (RRSP). 

The Home Buyers’ Plan (HBP) allows first time home buyers with RRSP accounts to borrow as much as $35,000 tax-free!

In case of joint purchase, each person can access $35,000 from respective RRSP accounts and have a combined total of $70,000. In as much as the HBP is a loan from yourself, it must be repaid back within 15 years.

On that note, here are some of the frequently asked questions that most homeowners ask before purchasing a home:

Am I eligible for the RRSP Home Buyers Plan?

Several requirements must be met in order to be eligible as a first-time homebuyer:

• To access this program, you must be a Canadian resident from the time you withdraw funds from your RRSP to the moment a qualifying home is built or bought
• The RRSP funds must have been in your account for at least 90 days before withdrawal. The contributions may not be deductible for any year if this is not the case
• In the event you are buying with a partner or spouse who is not a first-time homebuyer, you are required to not have lived in a house they owned for four years
• The home should be your primary residence within one year of purchase.
• You cannot have owned a home within the preceding four years
• In case you have used the Home Buyers’ Plan before, you cannot have any pending balances. All payments must be fully settled
• Acknowledge that you have entered into a written agreement to buy or build a home, either for yourself or for someone related to you living with a disability
• Withdrawal from your RRSP must be made within 30 days of taking the title of the home

How much money can I use?

The decision on whether to make a single withdrawal or subsequent withdrawals from your RRSP entirely depends on what you deem fit. 

However, the maximum withdrawal limit is $35,000. You cannot exceed this. This does not mean that you necessarily have to withdraw $35,000 you can choose to have a lower amount as your down payment depending on the kind of home you intend to own.

How do I repay the RRSP Home Buyers Plan?

You have 15 years to repay the loan. The Canada Revenue Agency oversees the entire repayment process. Any contributions made to your RRSP will be considered repayments for the loan and will therefore not be taxed.

The first payment is due two years after you have withdrawn the money. If by any chance you choose to start your repayments earlier, you ought to know that the period for repayment remains the same.

To kick off the repayment process, you are required to contribute to your RRSP in the year the payment is due or in the first 60 days of the following year. The CRA sends you a notice of assessment which indicates what amount of the loan you have already repaid, the pending balance and the amount required for your next payment.

In the instance where you buy a home in 2022, your first payment will be due in 2024. The minimum annual repayment is calculated by:

(Total RRSP withdrawal / 15 years)

However, this does not restrict you from paying more than the required annual amount. If you contribute more than your set minimum annual repayment, your go forward minimum payment will be readjusted for all the subsequent years. 

What if I miss a payment?

If you miss a payment for a particular year, you will still be required to make your annual repayment to your RRSP for each of the years remaining in your HBP participation period until the amount that was withdrawn is paid in full. 

Ideally, if you do not manage to make a payment, you must include it as RRSP income on line 12900 of your income tax and benefit return. The amount that you will include here is the minimum amount you have to repay as shown in your Home Buyers’ Plan statement of Account. After this is done, your HBP balance will be reduced accordingly.

What if I pay less than required?

The difference between the expected amount and what you have paid should be included as RRSP income on line 12900 of your income tax and benefit return. You are not allowed to include in your income more than the required repayment for a given year minus the amount you repay and assign it as an HBP repayment.

Can I use it if I live with my partner?

You are only considered a first-time home buyer if you had not occupied a home that either you or your current spouse or common-law partner had owned.

It is therefore important to note that even if you and your spouse or common-law partner had previously owned a home, you still stand a chance to be first time home buyers again once the four-year period has passed. 

More importantly, in the context of a breakup or split, you will not be barred from participating in the HBP as long as you live separate from your spouse or common-law partner for a period of at least 90 days. You will be permitted to withdraw from the HBP if you are living separately at the time of the withdrawal.

However, if your principal place of residence is occupied by a spouse or common-law partner, making an HBP withdrawal will not be possible.

Conclusion

Being a first-time homeowner has been made an achievable goal with the help of the Registered Retirement Savings Plan. With proper evaluation and commitment to repayment, the number of homeowners will undoubtedly be on the rise. 

There are many rules and many questions about the RRSP HBP process. If you have any questions please reach out to me. As your local Edmonton mortgage expert I am here to help!

For further information or questions regarding the RRSP HBP, book a call with me or reach me at 780-905-6359.

Are you ready to purchase your first home with your RRSP? Reach out to me directly or start your application here: www.sandraforscutt.ca/mortgage-application/