The First-Time Home Buyer's Guide to the Home Buyers' Plan (HBP)

Buying your first home is an exciting milestone, but it often comes with a myriad of financial considerations. From saving for a down payment to understanding mortgage rates, the process can be daunting. Thankfully, Canada has a program designed to ease some of the financial burden for first-time home buyers: the Home Buyers’ Plan (HBP).

Let’s look at everything you need to know about the Home Buyers’ Plan, from eligibility criteria to repayment requirements.

What is the Home Buyers' Plan (HBP)?

The Home Buyers’ Plan, established by the Canadian government, enables first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plans (RRSPs) tax-free to put towards a down payment on a home.¹

You can withdraw up to $35,000 from your RRSP under the Home Buyers’ Plan. If you’re purchasing a home with your spouse or partner who is also eligible, both of you can withdraw $35,000, for a total of $70,000.²

Who is Eligible for the HBP?

To qualify for the Home Buyers' Plan, you must meet several criteria:³

First-Time Homebuyer: You are considered a first-time homebuyer if you or your spouse/common-law partner have not owned a home that was your principal residence within the last four years.
Canadian Resident: You must be a resident of Canada at the time of the withdrawal.
RRSP Owner: You must be the owner of the RRSP from which you intend to withdraw funds.
Intend to Occupy the Home: You must intend to occupy the home as your principal place of residence within one year of purchasing or building it.

Repayment Requirements

Repaying the funds withdrawn under the Home Buyers' Plan is crucial to avoid penalties.

Your repayment period begins the second year after you withdraw funds from your RRSP.⁴
Each year, you are required to repay at least 1/15 of the total amount withdrawn. For example, if you withdrew the maximum of $35,000, your minimum annual repayment would be approximately $2,333.⁵
You have up to 15 years to repay the entire amount. You can make payments beyond the minimum to repay the balance faster.⁴

Benefits of the Home Buyers' Plan

The Home Buyers’ Plan aims to make homeownership more accessible and has many benefits, including:

Tax-Free Withdrawal
The funds you withdraw from your RRSP under the Home Buyers' Plan are not subject to income tax, providing immediate financial relief for your down payment.

Flexible Repayment
The repayment terms are reasonable, with up to 15 years to repay the withdrawn amount. This flexibility allows you to manage your finances more effectively.

Joint Participation
If you're purchasing a home with your spouse or partner, both of you can withdraw up to $35,000, effectively doubling your down payment funds.

Homeownership Opportunity
For many first-time buyers, the Home Buyers' Plan can be the key to unlocking homeownership, making it a valuable program for those looking to enter the housing market.

Considerations and Limitations of the HBP

While the Home Buyers' Plan offers significant benefits, there are some important considerations and limitations to keep in mind:

Repayment Obligation
Failing to repay the required amount each year can result in penalties. Staying on top of your repayment schedule is crucial to avoid additional financial burdens.

Impact on Retirement Savings
Withdrawing funds from your RRSP reduces your retirement savings. Consider how this may impact your long-term financial goals and retirement plans.

Time Sensitivity
Ensure you complete the purchase or construction of your home within one year of withdrawing funds. Failure to do so may result in the withdrawn amount being added to your taxable income for that year.

The Home Buyers' Plan is a valuable resource for first-time homebuyers in Canada. It provides a pathway to homeownership with reduced financial strain. By understanding the eligibility criteria, repayment requirements, and both the benefits and limitations of the HBP, you can make informed decisions as you embark on this exciting journey.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.