Understanding the Home Buyers' Plan (HBP)

The Home Buyers' Plan (HBP) is a program from the Canadian government that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to buy or build an eligible home without paying tax on the withdrawal.

How it works

You can withdraw up to $35,000 from your RRSP under the HBP. If you buy with a spouse or common-law partner who is also a first-time homebuyer, you can each withdraw up to $35,000, for a combined total of $70,000.

The withdrawn funds must be repaid to your RRSP over 15 years, starting in the second year after you withdraw the funds. If you do not make the required annual repayment, the amount will be added to your income for the year for tax purposes.

Eligibility criteria

First-time homebuyer: You must not have owned a home that you occupied as your principal residence during the four-year period before the withdrawal.

Written agreement: You must have a written agreement to buy or build an eligible home.

Timing of RRSP contribution: The funds must be in your RRSP for at least 90 days before withdrawal to be eligible for the HBP.

Canadian residence: You must be a resident of Canada when you withdraw funds and until you buy or build the home.

Key advantages

The HBP provides an interest-free loan from your own retirement savings, helping you accumulate a larger down payment. This can help you avoid or reduce your mortgage insurance premiums with CMHC or reduce the amount of your mortgage loan. Additionally, using RRSP funds you contributed in previous years means you have already received the tax deduction, making it a tax-advantaged way to access funds for purchasing your home.

Important considerations

While the HBP is a valuable tool, remember that withdrawing from your RRSP means those funds do not grow tax-deferred for retirement. Make sure you have a solid plan to repay the funds within the 15-year period to avoid tax consequences and to maintain your retirement savings goals.

Consult a financial advisor to determine if the HBP is the right strategy for your home buying journey.