Why use the HBP?

If you’re a first-time buyer or haven’t owned a property within the last four years, the HBP lets you withdraw up to $35,000 from your RRSP to help purchase a home. You won’t be taxed on the money you withdraw (provided that you pay it back on time), and if you’re buying a home with your partner you could withdraw up to $70,000.

By using the HBP, you might be able to make a bigger down payment than would have been possible using your savings alone. Increasing your down payment reduces your mortgage (and therefore your payments) and could also take you over the threshold for mortgage loan insurance. 

As a general rule, the down payment must be between 5% and 20% of the price of the home you’re buying. For a house priced at $400,000, a down payment of 20% would be $80,000.  

Mortgage loan insurance is mandatory if your down payment is less than 20%. Though you’ll have to pay the premiums, you’ll be able to get your foot on the property ladder. 

Be aware that the minimum down payment varies depending on the price of the property. For homes over $500,000, it’s 10% of the portion of the purchase price that exceeds $500,000. For homes over $1,000,000, the minimum down payment is 20% of the total price. 

Here’s an example. For a home priced at $600,000, the portion in excess of $500,000 is $100,000, so you’ll need a minimum down payment of $35,000 (5% of $500,000 plus 10% of $100,000).

Tapping into your RRSP can be a good way to increase your down payment. The HBP can also help defray other costs involved in buying a home, like the land transfer tax.

Is the HBP right for you?

Here are some rules for the HBP:

• You can only use your own RRSPs for an HBP withdrawal.
• The maximum withdrawal is $35,000 per eligible person.
• The house you're buying or building must be in Canada.
• You must be a first-time home buyer (or not have been a homeowner within the previous four years).
• You must be a resident of Canada.
• The property must become your principal residence before October 1 of the year following the RRSP withdrawal.  (Be careful if your property is under construction, because delays might prevent you from meeting the deadline.)
• The money you withdraw under the HBP must have been contributed to your RRSP at least 90 days before withdrawal.
• You can’t use the HBP for a second home, like a cottage. But the property you’re buying doesn’t need to be a single-family home. You can also take advantage of the HBP to buy a unit in a triplex or a high-rise.
• You have to repay the money you withdraw within 15 years. (The 15-year period begins in the second calendar year after the withdrawal.)

You don’t have to withdraw all the money at once. You can make multiple withdrawals under the program during the same calendar year.

Good to know: If you’re entitled to the disability amount on your tax return, you (and any related persons helping you with the purchase) are exempt from the first-time buyer requirement.

How does the HBP work?

Don’t worry—it's not complicated. Here’s the strategy, step by step.

• Make sure the money you want to withdraw is in your RRSP for at least 90 days before the withdrawal date.
• Fill out Canada Revenue Agency form T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP, which takes you through the eligibility criteria.
• After 90 days, make an HBP withdrawal and use it for your down payment. 
• You then have up to 15 years to pay back the amount withdrawn from your RRSP. Repayments start in the second calendar year after the withdrawal. So if you used the HBP in 2020, for example, you would have to start paying it back in 2022.
• You must repay at least 1/15th of the withdrawal each year. This means that if you withdraw the maximum amount of $35,000, you’ll have to pay back $2,333.33 to your RRSP each year. 
• If you’re a sensible saver who puts $5,000 a year into your RRSPs, you might decide to put some (or all) of this toward the repayment. Be aware, though, that contributions you designate as repayments can’t be used to reduce your taxes. (The HBP is good, but it's not that good.)