Using Your RRSP to Buy a House: A Guide for First-Time Buyers

Are you a first-time buyer struggling to afford your first home? Don’t worry, you’re not alone. Buying a house is a big investment, and it can be especially challenging for young Canadians who are just starting out. One of the best ways to help you afford your first home? Use your RRSP to buy a house or condo. 

The RRSP Home Buyer’s Plan (HBP) is a federal program that allows you to withdraw up to $35,000 from your RRSP tax-free to use towards the purchase of your first home. 

In this guide, we’ll take you through everything you need to know about using your RRSP to buy a house or condo, including how to qualify for the program, how to withdraw funds from your RRSP, and tips for making the most of the program.

Qualifying for the RRSP Home Buyers’ Plan

Before you can start using your RRSP to buy a house, you’ll need to make sure you qualify for the program. To be eligible for the HBP, you must:

• Be a Canadian resident
• Be a first-time home buyer, or have not owned a home in the last four years
• Have a written agreement to buy or build a qualifying home
• Intend to live in the home as your primary residence within one year of buying or building it
• Have enough funds in your RRSP to make a withdrawal

If you meet these criteria, you’re eligible to participate in the HBP.

Withdrawing Funds from Your RRSP

Once you’ve confirmed that you qualify for the HBP, the next step is to withdraw funds from your RRSP. You can withdraw up to $35,000 from your RRSP to use towards the purchase of your first home. Keep in mind that you’ll need to repay this amount back into your RRSP over a 15-year period, or else you’ll have to pay tax on the amount.

To withdraw funds from your RRSP, you’ll need to fill out the appropriate form, which can be obtained from your bank. Make sure you give yourself enough time to process the withdrawal – it can take several weeks before the funds are transferred to you. 

Repayment into Your RRSP

Repayment is a key aspect of the RRSP Home Buyesrs’ Plan (HBP). Under the program, you’re required to repay the funds you withdraw from your RRSP over a 15-year period. This means that you’ll need to make annual repayments to your RRSP, with the minimum amount due each year being 1/15th of the total amount you withdrew. 

Keep in mind that the repayment into your RRSP isn’t tax-free because you already got the tax benefit when you first contributed it. So while you’ll technically be contributing to your RRSP, it’s with after-tax dollars and you won’t get the usual refund at tax time. 

RRSP Repayment Example: If you withdrew the maximum amount of $35,000, your annual repayment would be $2,333.33. It’s important to note that you can choose to repay more than the minimum amount, but you can’t contribute less without having to pay a penalty. To ensure that you make your repayments on time, the government will provide you with a T4RSP slip each year, which will show the amount you need to repay. 

If you fail to make your repayments on time, you’ll be subject to tax penalties. The penalties are equal to 1/15th of the amount you withdrew, multiplied by the number of years you failed to make your repayment.

No Repayment Penalty Example:  if you withdrew $35,000 and failed to make your repayment for three years, you would be subject to a tax penalty of $7,000 (1/15th of $35,000, multiplied by 3 years). To avoid tax penalties, make sure to keep track of your repayments and make them on time.

Using Your RRSP to Buy a House: What Spouses Need to Know

If you’re married and considering using your RRSP to buy a home, there are a few things you need to keep in mind:

Can One Spouse Use the Program if the Other Spouse is Not a First-Time Buyer?

Yes, even if one spouse is not a first-time buyer, the other spouse can still use the program. However, the first-time buyer must meet all of the eligibility criteria, including not having owned a home in the last four years and intending to live in the home as their primary residence within one year of buying or building it.

If Both Spouses are First-Time Buyers, Can They Both Withdraw $35,000?

Yes, if both spouses are first-time buyers and have enough funds in their RRSPs, they can each withdraw up to $35,000 from their RRSPs, for a total of $70,000, towards the purchase of their first home. However, each spouse must meet all of the eligibility criteria and fill out the appropriate forms to make the withdrawal.

If You’re Separated or Divorced, Can You Be Eligible for the HPB?

If you’re separated or divorced, you may be eligible to use the program, even if you do not meet the first-time home buyer requirement, provided that you live separate and apart from your spouse or common-law partner for a period of at least 90 days as a result of a breakdown in your marriage or common-law partnership. 

You can read all about the HPB Program Rules here. 

Making the Most of the RRSP Home Buyers’ Plan

While the HBP can be a great option for first-time buyers, it’s important to keep a few things in mind to make the most of the program:

• If you haven’t been contributing to your RRSP, you can still flip your downpayment into an RRSP and participate in the HPB program. Here’s how this strategy works: make a contribution to your RRSP, claim the tax deduction on your tax return, and then withdraw the funds tax-free under the HBP to use towards your down payment. By doing this, you essentially get a tax refund on the money you contribute to your RRSP, which you can then use to increase your down payment. It’s important to note that the money must be in your RRSP for at least 90 days before you can withdraw it under the HBP (plan on 100 days to account for any delays). Talk to your banker and REALTOR before you lock away your downpayment to make sure this makes sense for your particular situation.
• Don’t withdraw more than you need: While you can withdraw up to $35,000 from your RRSP, it’s important to only withdraw what you need. Remember, you’ll need to repay this amount back into your RRSP, so don’t overextend yourself.
• Make a repayment plan: When you withdraw funds from your RRSP, you’ll need to repay the amount over a 15-year period. Make sure you have a repayment plan in place, and consider setting up automatic payments to make it easier to stay on track.
• Understand the tax implications: While you won’t pay tax on the funds you withdraw from your RRSP under the HBP, you will need to repay the amount back into your RRSP over time. Make sure you understand the tax implications of the program and talk to a financial advisor if you’re unsure.
• Plan for the future: While the HBP can be a great option for first-time buyers, it’s important to keep your long-term financial goals in mind. Make sure you’re still contributing to your RRSP and saving for retirement, even as you use the program to buy your first home.

Using your RRSP to buy your first home can be a smart financial move for first-time buyers, but it’s important to understand the program and make a plan to repay the funds. Be realistic about your budget and your ability to afford the home AND repay the money you’ve withdrawn – don’t overextend yourself! Talk to your financial advisor and real estate agent to see if the program is right for you. Don’t have a REALTOR yet? First-time buyers are one of our favourite kinds of clients! Contact the BREL team here.  

The Home Buyer’s Plan is just one of the programs available to first-time home buyers in Ontario. You can read more about the other buyer incentives here.

Commonly Asked Questions About the RRSP Home Buyer’s Plan 

What is the RRSP Home Buyers’ Plan?

The RRSP Home Buyers’ Plan (HBP) is a Canadian government program that allows first-time homebuyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) tax-free to put towards the purchase of their first home. This program is designed to help first-time buyers afford the upfront costs of buying a home – the down payment and closing costs.

Who is eligible for the program?

To be eligible for the HBP, you must meet several criteria. You must be a Canadian resident. You must be a first-time homebuyer or have not owned a home in the last four years. You must have a written agreement to buy or build a qualifying home. You must intend to live in the home as your primary residence within one year of buying or building it. Finally, you must have enough funds in your RRSP to make a withdrawal.

How much can I withdraw from my RRSP under the program?

You can withdraw up to $35,000 from your RRSP to use towards the purchase of your first home. This amount can be used towards the down payment, closing costs, and other expenses related to buying a home. However, it’s important to keep in mind that the withdrawal amount cannot exceed the amount available in your RRSP.

How do I apply for the program?

To apply for the program, you’ll need to fill out the appropriate form, which can be obtained from your bank. This form will require you to provide details about your RRSP, the home you’re buying or building, and your eligibility for the program. Once you’ve completed the form, you’ll need to submit it to your financial institution for processing.

How long does it take to process a withdrawal from my RRSP?

It can take several weeks to process a withdrawal from your RRSP, so it’s important to give yourself enough time to complete the process. Once your financial institution has received your form and processed your withdrawal, they will transfer the funds to your bank account. It’s important to keep in mind that the timing of the withdrawal may impact the timing of your home purchase.

Can I use the program to buy a second home?

No, the program is only available for the purchase of your first home. If you’ve already owned a home in the past, you may still be eligible for the program if you haven’t owned a home in the last four years.

How do I repay the funds I withdraw from my RRSP?

You’ll need to repay the funds you withdraw from your RRSP over a 15-year period. Repayments can be made in annual instalments, and you can choose to repay more than the minimum amount if you wish. It’s important to keep track of your repayments and ensure that you make them on time, as failing to do so can result in tax penalties.

What happens if I don’t repay the funds on time?

If you don’t repay the funds on time, you’ll have to pay tax on the amount you withdrew. This tax will be added to your income for the year, and you’ll be required to pay it when you file your taxes.

Can I use the HPB program if I’ve already owned a home in the past?

You may still be eligible for the program if you haven’t owned a home in the last four years. This means that if you sold your previous home more than four years ago, you may be eligible to use the program to buy a new home.

Can I use the program if I’m self-employed?

Yes, as long as you meet the other eligibility criteria. Self-employed individuals can use their RRSP to participate in the HBP, just like any other eligible Canadian resident.

How long does my money have to be in my RSP before I can withdraw it to buy a home?

It needs to be in your RSP for at least 90 days before you can withdraw it under the HBP. 

Can I use the program to buy a rental or investment property?

No, the program is only available for the purchase of your primary residence.

Can I use the program to buy a mobile home?

Yes, as long as the mobile home is your primary residence. However, it’s important to make sure that the mobile home meets the requirements for a qualifying home under the program.

How does using my RRSP to buy a home impact my retirement savings?

Using your RRSP to buy a house can impact your retirement savings, as you’ll need to repay the amount you withdraw back into your RRSP over time. This means that you’ll have less money in your RRSP to grow over the long term, which could impact your retirement income. However, if you have a solid repayment plan and are able to repay the funds on time, using your RRSP to buy a house can still be a smart financial move.

Can I use the program if I’m a non-resident of Canada?

No, you must be a Canadian resident to use the program. Non-residents are not eligible to participate in the HBP.

How do I report my HBP withdrawal on my tax return?

You’ll need to report the amount you withdrew on your tax return and make sure to repay the funds on time to avoid tax penalties. Your financial institution will provide you with a T4RSP slip, which will show the amount you withdrew and the amount you need to repay each year.

How does the program impact my first-time home buyer tax credit?

Using the HBP does not impact your first-time home buyer tax credit. If you’re eligible for the credit, you can claim it on your tax return in addition to using the HBP.

Can I use the program to buy a home outside of Canada?

No, the program is only available for the purchase of a home in Canada. If you’re looking to buy a home outside of Canada, you’ll have to consider other financing options.

How long do I have to repay the funds I withdraw from my RRSP?

You have up to 15 years to repay the funds you withdraw from your RRSP under the program. You’ll need to make annual repayments, and the minimum amount you need to repay each year will be indicated on your T4RSP slip.

How can I maximize the benefits of the HBP?

To maximize the benefits of the HBP, it’s important to have a solid repayment plan in place. Make sure you understand the repayment requirements and commit to making regular repayments on time. Additionally, you should consider how using your RRSP to buy a home will impact your retirement savings and overall financial plan. Speak with a financial advisor or a professional real estate agent to help you make an informed decision.

Can I participate in the HBP if I have a locked-in RRSP?

Yes, you can participate in the HBP if you have a locked-in RRSP. However, you should keep in mind that the funds you withdraw will still be subject to the locking-in rules that apply to your account.

How does the HBP impact my taxes?

Using the HBP can impact your taxes in several ways. Firstly, you’ll need to report the amount you withdrew on your tax return. Secondly, if you don’t make your repayments on time, you’ll be subject to tax penalties. Finally, using your RRSP to buy a house can impact your retirement savings, which could have long-term tax implications.

Can I use the HBP to buy a condo or a townhouse?

Yes, you can use the HBP to buy a condo or a townhouse as long as it meets the requirements for a qualifying home under the program.

How do I repay the HBP if I have a spousal RRSP?

If you have a spousal RRSP and you withdraw funds under the HBP, you’ll need to repay the funds to your own RRSP, not your spouse’s RRSP.

Can I participate in the HBP if I’ve owned a home in the past but I’m currently renting?

Yes, you may still be eligible for the HBP if you’ve owned a home in the past but are currently renting. The program is designed to help first-time buyers, which includes individuals who have not owned a home in the last four years.

What if I need to withdraw more than $35,000 from my RRSP to buy a house?

If you need to withdraw more than $35,000 from your RRSP to buy a house, you’ll be taxed on the amount that isn’t eligible under the HPB program, in other words, anything over $35,000. 

Can I use the HBP to buy a cottage?

No, the HBP is only available for the purchase of your primary residence. 

Can I use the HBP to buy a house for a friend or family member?

No, the HBP is only available for individuals who are buying their first home to use as their primary residence. 

Can I participate in the HBP if I have a defined benefit pension plan?

Yes, you can participate in the HBP if you have a defined benefit pension plan. However, you should be aware that the amount you withdraw under the program will still be subject to the pension adjustment rules that apply to your plan.