Home-buyers’ plan explained

Note: as of January 2019, people can now withdraw up to $ 35 000 under the program. 

If you are trying to buy your first home and have difficulties coming-up with required down payment, the Canada Home-buyer plan or HBP might help you.

The HBP allows you to withdraw up to $ 35 000 from your RRSP, tax free. You can withdraw this sum, provided it is available. If you buy with a spouse or a partner, you can withdraw up to $ 70 000.

You need to buy a “qualifying home”, i.e. a home you will use as your primary residence. Rental properties do not qualify. You need to have a written purchase agreement.

You also need to withdraw the money maximum 30 days before possession. You won’t qualify for the HBP after possession date.

Last but not least, you need to be a resident of Canada.

Canada Revenue Agency considers the HBP a loan. Although you won’t pay any interest, you will still need to repay what you withdrew within 15 years. The repayment starts the second year after the purchase. CRA will indicate the amount you need to pay on your Notice of Assessment.

If you don’t make the required payment, the amount will be considered taxable. You will always have to repay this loan, even if you file for bankruptcy or consumer proposal.

Using the HBP has both pros and cons.

Pros:

• Tax and interest free withdrawal
• 15 years to repay and no penalty if you repay before
• Allow you to become a home-owner sooner

Cons:

• borrow against future needs (retirement)
• lost interest & capital gains
• must repay the loan “no matter what”

I used the HBP when I bought my condo 2 years ago. I withdrew $ 7 000. I don’t regret my decision.

I have already put 2/3 of this money back and will put the remaining portion back within the next 6 months. And most importantly, I was able to become a home-owner.