10 Jun

Using RRSPs for Your Down Payment – What You Need to Know

Down Payments

Posted by: April Hopfner

Saving up for a down payment can be hard! With rising grocery and living costs, it’s difficult to build up savings, let alone thousands of dollars to buy your first home.

Fortunately, the Canadian government has created some programs to assist homebuyers. If you’ve been contributing to an RRSP, the Home Buyer’s Plan might be the perfect option get into your first home sooner!

How does it work?

Here are some of the basics you need to know:
1. You must be a considered a first time homebuyer – this means you must not have occupied a home owned by you or your spouse/common-law partner for the four year period beginning Jan. 1 of the fourth year before you withdrew the RRSP funds and ending 31 days before withdrawal. That’s a mouthful! Basically if you are looking to withdraw funds on July 31, 2019, you can’t have owned or lived in a home your spouse owned from Jan. 1, 2014 to June 30, 2019.
2. You can withdraw up to $35,000 – based on the balance in your RRSP account, you can withdraw up to $35,000, as long as it is not a locked-in or group RRSP. That would be a 5% down payment on a $700,000 home!
3. Your RRSPs must have been in the account for at least 90 days prior to withdrawal – the funds must have been in your account for 90 days or they may not be deductible for any year. Trust me, you want the deduction on your tax return!
4. You must intend to live in the home within 1 year of buying or building it – this means you must move in within a year. And no, you’re not allowed to purchase it as a rental property!
5. You must pay back the RRSPs within 15 years – the total amount you withdraw will be divided by 15 years, and each year you must contribute that amount back into your account. For example, if you withdrew $20,000, you must pay back at least $1,333.33 each year for 15 years. You have the option to contribute more each year to pay it off faster. If you fail to pay back the amount calculated, you will be taxed on those amounts on your annual tax return.
6. You must complete the necessary paperwork – there is a specific request form that needs to be filled out and submitted to your financial institution that confirms you are taking out the funds for a down payment.
7. You must have an agreement to purchase or build a home – this means before you can apply for the program, you must have an actual accepted offer on the home you want to purchase. Pre-approvals do not apply in this case.

The Home Buyer’s Plan can be an exceptional way to help you get into your first home since it is basically an interest-free loan from yourself (as long as you complete the necessary steps and pay it back as directed by the CRA!).

If you have questions about using your RRSP as a down payment, please contact me or your own mortgage or tax professional. More details about the program can be found on the CRA website at: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/participate-home-buyers-plan.html.

Happy Home Buying!

April Hopfner