With the federal government’s Home Buyers’ Plan, you can use up to $25,000 of your RRSP savings ($50,000 for a couple) to help finance your down payment on a home. You must be a first time home buyer and you are considered a first-time home buyer for this program if you have not owned a home for the past 4 years. The 4 year period begins on January 1st of the fourth year before the year you withdraw funds and ends 31 days before the date you withdraw the funds. As an example if you withdraw funds on March 31/16 the 4 year period begins on January 12 and ends on Feb 29/16.
To qualify the RRSP funds you’re using must be on deposit for at least 90 days and you must also provide a signed agreement to buy or build a qualifying home. 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. As an example if you withdraw 25,000.00 divided by 15 years you will be required to pay 1666.66 per year to replace the 25000.00 in your RRSP. If you do not make the required payment for the year the 1666.66 will be added to your income for that particular year.
Using your RRSP’s as a down payment may be a great option if you have the ability to draw from some of your existing resources and assuming you still have enough contribution room in your RRSP for a contribution. You could move your savings into an RRSP at least 90 days before the closing date of your purchase. Then you can simply withdraw the money through the Home Buyers’ Plan. The advantage to you is your $25,000 RRSP contribution will count as a tax deduction for this year and will generate a tax refund. You can use the tax refund you receive to repay the RRSP or other expenses related to buying your home. Another option is if you have already saved $25,000 for a down payment and an RRSP contribution might possibly allow you to accumulate the 20% down payment eliminating the need for hi ratio mortgage 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 to avoid paying the hi ratio insurance premium. Please contact us if you would like more information.