– Spring is typically a very active season for residential real estate, as
families upsize and make changes. Most aim for summer closings, so the kids
have have time to adjust to new neighborhoods and before entering new
schools in September.
Those trading up from existing homes already have equity, and it becomes a
lot easier to arrange financing. But for first-time home buyers, it’s a
different story, especially those with young families just starting out.
How can you scrape together a down payment?
Saving like crazy is what most young families do to raise a down payment.
Gifts or loans from parents are often also a source of funds. But RRSPs can
also be another source of ready cash for a down payment, through a
government program called the Home Buyer’s Plan (HBP).
The HBP basically lets first-time home buyers withdraw up to $25,000 from
their RRSPs in a calendar year to buy or build a qualifying home. That
amount will not be included in your income and tax will not be withheld on
the withdrawal. So for a couple, each with at least $25,000 in their
separate RRSPs, that could mean an extra $50,000 to tack on to a down
What are the rules for HBPs?
There are many rules that apply, but essentially you have to follow just a
few key items in order to qualify for withdrawing money from your RRSP
under the HBP:
* You have to be a first-time home buyer. Generally, if you or your spouse
or partner owned a principal residence within four years before your HBP
withdrawal, you won’t qualify.
* You have to be a Canadian resident and have entered into a written
agreement to buy or build a qualifying home – that is, just about any type
of housing unit located in Canada.
* You have to use the home as your principal residence within a year of
buying or building it.
* You have to repay the amounts you’ve withdrawn back into your RRSP over a
maximum 15-year period, with a minimum annual repayment of 1/15 of the
total withdrawal. You may, of course, pay back more and faster. And to make
sure you do, the outstanding balance is listed the annual Notice of
Assessment you received after filing your tax return.
Is an HBP withdrawal worth it?
That’s actually a complex question. Basically, the downside of the Home
Buyer’s Plan is that you’re taking money out of your RRSP, so it will no
longer be growing and compounding within the plan on a tax-sheltered basis.
However, the offset is that you’re using to purchase residential real
Residential real estate, especially in Canada’s larger urban markets, has
historically been a good investment, at least keeping pace with the rate of
inflation, and often exceeding it by a wide margin. So in the investment
sense, if you choose the right home in the right location, anything you
give up in your RRSP in terms of growth you’re likely to make up in the
increase in value of your real estate.
In other words, it’ll pretty much be a wash. In fact, you may even come out
a little ahead of the game, because remember, you’re paying back that HBP
withdrawal into your RRSP over 15 years, so that money will still be
growing and compounding along with your regular annual contributions. It
just won’t be growing as fast. When all is said and done, your home will
have appreciated, but so will your RRSP.
What should you do?
In general, an HBP is a good source of cash for a down payment on a first
home. You’re essentially borrowing from yourself. But you need to consider
it carefully in the context of your personal situation. As with any kind of
financial planning advice that involves a key personal decision – and
buying a home is about as personal as it gets – there are many factors to
take into account: the size of your RRSP, the type of home you’re
considering, your financial resources, including your employment prospects,
your family plans (for example, is a baby on the way?), your ability to
repay, and so on.
Everyone’s situation is different in the specifics, and the Home Buyer’s
Plan can be complicated. So getting some objective advice from a qualified
financial planner is a good idea. We’ll crunch the numbers for you and let
know pretty quickly whether an HBP withdrawal from your RRSP makes sense
for you. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
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The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
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limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.