How do you use your RRSP to buy a house?
You may know that first-time buyers can use their RRSP money to help them to buy a home, but you may not know how it works and whether you can take advantage of it. Here's a primer:
The official name: You use your RRSP money to help buy a home by using a program called the Home Buyers' Plan (HBP).
Whose program is it?: Good question! The answer is: the federal government. The feds launched the HBP as a way to help first-time buyers get into the housing market; the federal and Ontario governments have a long tradition of helping home buyers!
How it works: Basically, you withdraw funds from your RRSP and use that money toward buying a home, usually as a down payment (the home has to be where you're going to live, i.e. your principal residence). You don't have to add the amount of the RRSP money that you withdraw to your income -- and be liable for the ensuing taxes -- and your RRSP issuer will not tax the funds, either. You then have 15 years in which to repay the money to your RRSP.
How much RRSP money can I use?: You can use up to $20,000 of your RRSP money AND your spouse can, too! So, if a couple is buying a home for the first time, they can use $40,000 in RRSP funds. As well, two friends buying a home together could also contribute $40,000.
When do I have to start paying back the RRSP money?:The second calendar year following the year in which the withdrawal was made. (And you have 15 years to pay it back, as we mentioned.)
Define "first-time buyer": You might qualify as a "first-time buyer" under the HBP even if you've owned a home before! If you haven't owned a home in the past five years, you qualify. If you used the HBP in the past, but have paid off the balance owing as of January 1st in the year that you want to buy a home again, you could qualify, too.
'Caveats': For those of thinking of dumping money into an RRSP and then withdrawing it the next day to buy a home, bear in mind that the RRSP funds have to be dep- osited at least 90 days before a withdrawal under the HBP. There are a bunch of criteria that you must meet, too, such as being a Canadian citizen.
We hope that this gives you enough information to know whether the HBP can help you to buy your first home!
For more in-depth details, you can always call Phil, or surf over to the Revenue Canada website for a complete rundown about this program.