How the RRSP Home Buyers Plan (HBP) Works

When I bought my first home when I graduated in 2003, I was fortunate enough to have some cash saved for a down payment. Most young people, however, don’t have this luxury but they have some money in an RRSP. In this particular situation, using the RRSP First Time Home Buyers Plan (HBP) can be of great benefit.

What is the HBP?

The RRSP Home Buyers plan is a program that allows first time home buyers to withdraw up to $20,000 $25,000 (as of 2009 federal budget) from their RRSP towards their first home TAX FREE.

How does it work?

As mentioned above, if you are a first time home buyer, you can withdraw up to $25,000 out of your RRSP tax free! If you are purchasing the home with a spouse, you can both withdraw $25k EACH from your accounts. In terms of repayment, you have up to 15 years to pay back your RRSP starting the second year after the year of withdrawal (from govt website). At this time 1/15 of your borrowed amount must be paid back / year.

What’s the catch?

  • In terms of penalties, if you don’t repay 1/15 of the borrowed amount / year, you’ll have to add the amount as income.
  • You MUST be a first time home buyer and a resident of Canada at the time of withdrawal.
  • You MUST purchase/build the home before Oct 1 after the year of withdrawal.
  • RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.

Why would I do this?

This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. Some may argue that you’re missing out on growth in your RRSP while the money is borrowed. However, I think that if you get a good price for your first home relative to others in the neighborhood, the appreciation of the home will hopefully make up for this.

On top of that, aggressive RRSP contributions after purchasing the home should be part of the plan. Here is the government site that explains the HBP program in detail: Home Buyers’ Plan (HBP)

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Maria
4 months ago

does this mean that if your a first time home buyer, it doesn’t matter if you have enough money at your rrsp? You can still withdraw 25k as a downpayment for your house?

Felton
5 years ago

Hi,
Is there any way I can use the HBP to rent the property?

Sharon
5 years ago

I have a question: My employer matches up to 3% of my income when I contribute 3% (or more), does their contribution count towards my HBP pay back?

Ed Rempel
5 years ago

Hi Ian,

You can get your first time home buyers qualification back (unlike virginity!). However, the 4-year period takes you one more year until January 1 , 2017.

If you buy a home in 2017, you will only have 4 years of repaymnet up till age 71. If you still have a home buyers plan balance left after December 31 of the year you turn 71, the remaining amount is added to your income divided over the remaining 11 years.

This is actually a cool way to defer tax, since 1/15 of your withdrawal in 2017 is taxable each year.

The downside is if your taxable income is low and you get GIS. If so, then the 1/15 added to your income is essentially taxed at 70% – a 50% reduction in your GIS plus 20% tax.

If your income is too high to get GIS, using HBP now can work very well for you.

Ed

Ian
5 years ago

Two questions.

We sold our home in Aug 2012. Does this mean that we can use the program to buy a home from Jan 1, 2016 onwards…ie does this meet the 4 year period

We are 64 and 62 years old respectively. Will the 15 year payback period extend to 79 and 77 respectively and how does it mesh with RSP drawdown rules?

thank you

karmen
5 years ago

Do I have to purchase a home in Canada?

Jenny
6 years ago

Hi There,

I took out the full 25K for my first time HBP. I have lived in the property for 3 years and am now planing to travel for 1 year. Can I claim the entire value of my HBP as my income for my year of travel?

Thanks,

Maria
4 months ago
Reply to  Jenny

How did you apply for hbp?

Dave
6 years ago

I took out 5000$ to put down on a house which looks like it will fall through due to house inspection. Because I transferred this out of my RRSP already does that mean I can’t do it again? Or because I did not use it to purchase a home can I retry at a later date? Thanks!

Diane
7 years ago

My understanding is that at age 71, a HBP participant has three choices – one of which is to have the annual repayment amount considered to be income on his or her tax return and obviously, pay the required tax on that. One question that comes to mind is: Would that “income” amount have an impact on GIS? (i.e, would or could it be considered part of the $3500 exemption amount).

Lanette
7 years ago

The HBP is a one-time withdrawal up to a $25K maximum, meant to assist with a downpayment, so you would not be able to draw on the remaining room after your initial purchase.