RRSP First Time Home Buyer's Plan
With the federal government's Home Buyer's Plan, you can use up to $35,000 of your RRSP savings ($70,000 for a couple) to help finance your down payment on a home.
Do I Qualify?
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the RRSP funds you're using must be on deposit for at least 90 days.
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You must be considered a First Time Buyer.
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You must have a written agreement to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home (obtaining a pre-approved mortgage does not satisfy this condition)
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You must intend to live in the qualifying home as your principal place of residence within one year after buying or building it. If you buy or build a qualifying home for a related person with a disability, or help a related person with a disability buy or build a qualifying home, you must intend that that person lives in the qualifying home as his or her principal place of residence.
Do I meet the RRSP withdrawal conditions?
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You have to be a resident of Canada at the time of the withdrawal.
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You have to receive or be considered to have received, all withdrawals in the same calendar year.
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You cannot withdraw more than $35,000.
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Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdraw amounts of $35,000 or less.
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Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.
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Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.
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Neither you nor your spouse or common-law partner or the related person with a disability that you buy or build the qualifying home for can own the qualifying home more than 30 days before the withdrawal is made.
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You have to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home before October 1 of the year after the year of the withdrawal.
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You have to complete Form T1036, Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP for each eligible withdrawal.
Am I a First Time Home Buyer?
Normally, you have to be a first-home buyer to withdraw funds from your RRSPs to buy or build a qualifying home.
You are considered a first-time home buyer if, in the four year period, you did not live in a home that you or your current spouse or common-law partner owned.
*Note: Even if you or your spouse or common-law partner has previously owned a home, you may still be considered a first-time home buyer.
The four-year period:
Begins on January 1 of the fourth year before the year you withdraw funds; and ends 31 days before the date you withdraw the funds.
For example, if you withdraw funds on March 31, 2015, the four-year period begins on January 1, 2011 and ends on February 28, 2015.
If you have a spouse or common-law partner, it is possible that only one of you is a first-time home buyer.
Advantages
Using your RRSP's as a down payment may be a great option as you have the ability to draw from some of your existing resources and it might possibly allow you to accumulate the 20% down payment needed to avoid having to pay default insurance premiums. Even if you already have enough money for your down payment, it may make sense to access your RRSP savings through the Home Buyers' Plan.
The best part is the withdrawal is not taxable as long as you repay it within a 15-year period. The payback amount is at least one-fifteenth a year of the amount you withdrew from your RRSP. So make sure you set up an RSP-Matic®, an automatic monthly, bi-weekly or even weekly contribution to your RRSP, to ensure you do not miss any repayments!
For example
If you have already saved $35,000 for a down payment and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount, you could move your savings into an RRSP at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan. Your $35,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home. But remember, you will have to pay that amount back to your RRSP over the next 15 years.
What should I Consider before using my RRSP?
It's very important to your overall plan that both the pros and cons of this strategy be reviewed. There are a number of questions you should be asking yourself about this strategy:
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Will you repay the required amount each year?
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Is it the right time to cash out your RRSP (i.e., this depends on the investments and rate of return you are getting on your current investment)?
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Is it worth forgoing the future tax sheltered growth potential of your RRSP in favour of reducing the mortgage amount (including default insurance premiums, total interest costs, etc.)