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Home Buyers' Plan (HBP): What you need to know

The Home Buyers’ Plan (HBP) is a government program that allows Canadians to borrow money from their Registered Retirement Savings Plan (RRSP) to purchase a home. This program can be beneficial for people looking to buy their first home, as it allows them to build up their equity faster.

The dwelling (house, condo, plex, etc.), which must be considered as the principal residence, can be new or existing.

How does the RAP work?

The HBP allows a homebuyer to withdraw up to $60,000 from his or her RRSP for the purchase of a property.

Eligibility requirements for the Homeownership Plan:

To be eligible, you must meet certain criteria:

  • You must be a Canadian resident.
  • You must be considered a first-time home buyer. However, you will also be eligible for the HBP if, for a period of four years, you did not reside in a home owned by you, your spouse or common-law partner.
  • You must have an RRSP account.
  • You must be able to repay your HBP loan according to a pre-determined schedule.
  • Have an accepted offer to purchase, signed by both parties, on a home or the construction thereof.

How long do I have to pay back the withdrawn funds?

You have 15 years to repay all the funds you withdrew from your RRSPs for the HBP.

However, you can start repaying the money in the fifth year after the year the funds were withdrawn. For example, if you withdrew in 2024, repayments would have to begin in 2029 and end 15 years later.

However, it is possible to start repaying the money in the first year.

The Canada Revenue Agency will determine the minimum repayment to be made each year for 15 years, in equal payments. Note that you have the option of repaying all or the balance of the amounts withdrawn at any time.

For more information on HBP refunds, refer to the CRA.

The HBP is a popular option for Canadians looking to buy their first home, as it allows them to maximize their down payment while minimizing borrowing costs.

Note that some RRSPs, such as locked-in or group RRSPs, would not allow premature or other withdrawals, even under the HBP.

FHSA (First Home Savings Account)

How The FHSA or CELIAPP Works

This account allows prospective homebuyers to contribute $8,000 a year up to a lifetime maximum of $40,000 toward buying their first home. Withdrawals and investment incomes will be tax-exempt as long as the funds are used to purchase a home. Otherwise, they would be tax-deferred if transferred to a qualifying RRSP or RRIF. 

The FHSA combines the tax-exempt withdrawal advantages of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP) income tax deductions. The FHSA allows first-time buyers even more contribution room while realizing tax savings and the opportunity for additional tax-free investment growth. 

Like TFSA and RRSP accounts, you can use the FHSA to save cash or invest in ETFs, stocks, bonds, mutual funds, and GICs. The funds can then grow tax-free in the account, so you avoid income taxes on interest and capital gains while saving to purchase a home. 

 

Eligibility requirements for the First Home savings Account

To be eligible to open an FHSA, you must be the age of majority in your province and under 71 years old. You must also be a resident of Canada and considered a first-time homebuyer. 

To be considered a first-time homebuyer (FTHB) to open an FHSA: 

  • You did not at any time in the current calendar year before the account is opened or the 4 years preceding live in a home as a principal place of residence that you owned or jointly owned or your spouse or common-law partner (at the time the account is opened) jointly or solely owned. 

To be considered a first-time homebuyer (FTHB) to withdraw funds from the FHSA:

  • You did not at any time in the current calendar year before the withdrawal (except the 30 days immediately before the withdrawal) or anytime in the preceding 4 calendar years, live in a home as a principal place of residence that you jointly or severally owned. 

Can I use a FHSA and a HBP at the same time?

Yes. It will be possible to use both the home buyer’s plan (HBP) and the First Home savings Account (FHSA) for the purchase of an eligible first home.

Unlike the HBP, where money withdrawn from the registered retirement savings plan (RRSP) must be repaid over a period of 15 years starting in the fifth year following the year you made the withdrawal under the HBP , FHSA does not ask for any reimbursement.

There is no limit to the amount that can be withdrawn from the FHSA, while you cannot withdraw more than $60,000 from your RRSP under the HBP.

You can choose between a HBP or a FHSA, or take advantage of both plans. The choice depends on the client’s strategy for their first home purchase project.

 

How do I request a withdrawal from my HBP?

To apply for an HBP, you must complete the Government of Canada form T1036. This form must be sent to your RRSP administrator for processing. You can withdraw funds from your RRSP up to 30 days before the purchase of your property.

 

Good to know

If you contribute to your RRSP before making an HBP withdrawal, you will be entitled to your tax deduction only if the funds have remained in your RRSP for at least 90 days. You may also be able to access the HBP if you purchase or build a qualifying home for a related person with a disability.

Conclusion

The Home Buyers’ Plan (HBP) is a government program that allows Canadians to borrow money from their RRSPs to purchase a home. While there are many advantages, there are also disadvantages to consider. Before applying for an HBP, it is important to understand the eligibility criteria and the advantages and disadvantages associated with it. The HBP can be a useful tool to help Canadians purchase their first home, but it must be used thoughtfully. If you are considering using the HBP to purchase a property, it is recommended that you discuss your financial situation with a professional. A financial advisor can help you determine if the HBP is the best option for you and can help you plan your repayment. Ultimately, the HBP is a tool that can help Canadians become homeowners sooner, but it is important to understand the long-term implications before making a decision. If you have any questions about the HBP or about buying a home, don’t hesitate to contact a professional.

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