The Home Buyers Plan
The Home Buyers’ Plan (HBP) is a program created by the Canadian government to facilitate and encourage Canadians to buy (or build) their first home. It has been in existence since 1992 and more than 650,000 Canadians have benefited from it (source: Statistics Canada).
What is the Home Buyers' Plan (HBP)
The HBP is a government program that allows you to borrow from your RRSPs to buy or build your home, without paying taxes. You then have 15 years to repay the amount borrowed without interest.
This program allows you to withdraw up to $35,000 from your RRSP (per person, so $70,000 for a couple if both buyers are first time buyers) to put towards the down payment on your first property. If you are buying with someone who is not a first time buyer, the maximum amount you can draw is $35,000.
Who is eligible for the HBP?
Individuals eligible for the HBP must:
- Be a first-time home buyer. Note that if you or your spouse (de facto) do not own a principal residence for 4 years, you become eligible for the program.
- Have an offer to purchase accepted and signed by both parties OR have a house built.
- Be Canadian citizens, permanent residents of Canada and have lived in this country for at least one year.
The HBP is an excellent program that can help you buy your first home. It is important to note, however, that it comes with strings attached and you should consult your mortgage broker to see if it is right for you.
HBP funds must be deposited at least 90 days prior to withdrawal from the RRSP. Funds can be used to purchase or build a qualifying home. The property must be used as the purchaser’s principal residence. Funds cannot be used for rental properties (income properties) unless you occupy the property…
In order to withdraw money from your RRSP, you must complete the Government of Canada T1036 form.
When you repay your HBP and redeposit the money into your RRSP, these repayments are not deductible as a regular RRSP contribution, because the money was already taxed when it was originally deposited into your RRSP (before the HBP).
The repayment term is 15 years and begins in the second year after you enroll. You can repay the full amount committed to your HBP at any time.
The amounts you repay are not included in the calculation of your RRSP benefit.
Each year, you must repay at least 1/15 of the amount you withdrew, or about 6% of your withdrawals. For example, if you withdrew $35,000 from your RRSP for HBP (the maximum amount per person), you would have to repay $2100 per year.
What are the benefits of homeownership?
You can save a significant amount of money in interest by using this program. You will be able to increase your down payment and reduce your mortgage with it. As a result, you will be able to pay off your mortgage faster. In the end, you will have saved a lot of money on interest.
You can also avoid or reduce the premium for mortgage default insurance. If your down payment is less than 20% of the purchase price of your home, you must purchase mortgage default insurance sponsored by CMHC, SAGEN or Canada Guaranty. Therefore, you will be charged a premium and the amount of the premium will be based on the available down payment.
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