Home buyers Plan (HBP)

Home buyers Plan (HBP)

How the Home Buyers Plan (HBP) works!

In the market to purchase a home? The down payment can come from your RRSP’s. You must be a First Time Homebuyer or haven’t owned a home in 4 years. $35,000 can be withdrawn from your RSP if you’re eligible.

Should you be purchasing with someone who has never owned a home, you both can withdraw up to $35,000 tax-free. This could be $70,000 between both applicants. Since the HBP is considered a loan, it must be paid back in installments over 15 years.

Eligibility Requirements

RRSP funds you withdraw tax-free must be in your account for at least 90 days prior to your withdrawal date

• For 4 years you cannot have owned a home

• Purchasing a home with a spouse or common-law partner who is not a First Time Homebuyer. They cannot have lived in the house they owned for 4 years.

• Your intention is to live in the home within one year of purchasing it as a primary residence.

• If you have used the Homebuyers Plan before, there cannot be a balance owing.

• You must be a Canadian resident

How the HBP process works

Any funds being withdrawn under the HBP must be in your RSP account for 90 days before it can withdraw it.

To participate in the Home Buyers Plan, you need the T1036 form from the Canada Revenue Agency’s website (www.cra.gc.ca). Section 1 must be completed then sent to the institution that holds your RSP so they can complete section 2. Your financial institution will give you a T4RSP form which confirms exactly how much you have withdrawn from your RSP’s under the Home Buyers Plan (HBP).

Repaying the loan

Since the HBP is considered a loan, you have 15 years to repay it. The first payment is due two years after you withdrew the money. When CRA sends your Notice of Assessment, it shall indicate how much of the loan you have repaid. It will also indicate the amount for your next payment.

Should the HBP payment be missed, that portion of the loan loses its tax-exempt status and is considered to be regular, taxable income.

HBP Pros:

• Down payment possibilities: The HBP allows access to RSP funds for the required 5% down payment.

• Tax-free funds: When you fund your RRSP’s, you get a tax break.

HBP Cons:

• Retirement put at risk: While the HBP is meant to restore retirement funds, it rests on the homebuyer to repay them. Failing to repay them leaves the homeowners less when it comes to their retired years.

• Lost Interest Building Opportunity: Pulling RSP’s out for your down payment effectively cuts short its interest-earning capabilities. Using the funds for your down payment benefit you short term, untouched savings will earn far more interest over the long haul.

• Young savers are not using RRSPS: According to Statistics Canada, over 40% of income earners younger than 35 save their money in a tax-free savings account (TFSA).

Looking to purchase a home and want your down payment to come from the Home Buyers Plan (HBP), make sure you work with a mortgage professional. We can explain exactly how accessing your fund’s works and how payments back must occur. Consult your Edmonton mortgage specialist Eva Neufeld today!