Trying to get the right amount of money for a down payment is often the main challenge that a lot of Canadians who want to own a house are facing. Canada’s government has identified this problem and has executed the Home Buyer’s Plan, which lets capable first-time buyers to pull out a maximum of $25,000 from a Registered Retirement Savings Plan (RRSP) – without penalty – to be used as down payment for their new house.
To be qualified for the Home Buyer’s’ Plan, certain conditions must apply such as:
- The maximum amount that you can withdraw from the RRSP is $25,000. If you’re married or buying the house along with another first-time buyer, each of you can withdraw of up to $25,000 from the RRSP, so that’s $50,000.
- Only the person that owns the RRSP may take money. You can withdraw from more than one RRSP as long as you’re the owner. The total amount that you can withdraw cannot exceed $25,000.
- Normally, you can’t use money from a locked-in RRSP.
- The money will be deposited in the RRSP for at least 90 days before withdrawal.
- A signed contract attesting your commitment to buy is needed. This only means you must have a purchase agreement with a seller or builder presenting you as the buyer.
- It’s imperative that you purchase or build before October 1 of the succeeding year after fund withdrawal. Example, if you withdraw the money in the RRSP in June 2015, you need to build or purchase before October 1, 2016.
- The property that is being bought should be occupied by the owner except if you’re buying the property for somebody who’s related to you and is disabled, and the new house proves to be suitable to their needs compared to their previous house.
- The Home Buyer’s’ Plan can’t be utilized to buy a rental or investment property.
- If you’re disabled, you may join the Home Buyers’ Plan to purchase or build a house that is easily accessible than the one you are presently living.
- You will start repaying your RRSP 2 years the amount has been withdrawn. You are given 15 years to pay back the money with a minimum of 1/15 of the money being paid back every year. If you are not able to pay the minimum 1/15 per year, that amount is going to be considered as taxable income.
- You may take part in the Home Buyer’s Plan more than once; however, if your remaining balance from your first withdrawal has been fully repaid at the time of your re-application.
As a Toronto Mortgage Broker, I have helped many people tap into their RRSP for for a down payment. Contact me for any further questions on RRSP’s and how they can be used towards down payments on your home.
