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RRSP for first time buyer – how does it work?


RRSP for First Time Buyers

How does it work?
Under the "HBP", Revenue Canada permits you to use your RRSP funds towards the purchase of a new home. The default insurance companies support this program (when your down payment is less than 25%) in allotting the RRSP funds as a source of down payment.

No penalty for withdrawal
There are no negative effects from removing funds from the RRSP - in short, individuals are able to withdraw monies from their fund without penalty:

  • No tax is owed on the monies withdrawn
  • No interest is paid on the monies while it is outside of your RRSP
  • There is no monitoring of the monies while outside your Plan

Subject to restrictions
Regardless of no penalties for withdrawing funds, there are certain guidelines that must be followed in order to remain protected under the HBP' umbrella:

  • There is a maximum of $20,000 that can be withdrawn from one individual's RRSP.
  • There can be a maximum of two first-time buyers in the purchase of a new home, and each individual can withdraw up to $20,000 for a total of $40,000.
  • The purchased home must be owner occupied.
  • The RRSP must be repaid within 15 years with minimum annual payments of 1/15th of the withdrawn amount - failure to do so will result in 1/15th of the RRSP initially withdrawn having to be added back to taxable income in any year the minimum re-deposit is not made.