The RRSP Home Buyers' Plan

What is the Home Buyers' Plan?

With the federal government's Home Buyers' Plan, you can use up to $60,000 of your RRSP savings ($120,000 for a couple) to help finance your down payment on a home.

To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You must also provide a signed agreement to buy or build a qualifying home.

The best part is the withdrawal is not taxable as long as you repay it within a 15-year period. The payback amount is at least one-fifteenth a year of the amount you withdrew from your RRSP. So make sure you set up an RSP-Matic^®, an automatic monthly, bi-weekly or even weekly contribution to your RRSP, to ensure you do not miss any repayments!

Advantages

Using your RRSPs as a down payment may be a great option as you have the ability to draw from some of your existing resources and it might possibly allow you to accumulate the 20% down payment needed to avoid having to pay default insurance premiums. Even if you already have enough money for your down payment, it may make sense to access your RRSP savings through the Home Buyers' Plan.

For example, if you have already saved $60,000 for a down payment and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount, you could move your savings into an RRSP at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan. The advantage? Your $60,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home. But remember, you will have to pay that amount back to your RRSP over the next 15 years.

Considerations

It's very important to your overall plan that both the pros and cons of this strategy be reviewed. There are a number of questions you should be asking yourself about this strategy:

• Will you repay the requirement amount each year? At least 1/15 of your withdrawal will need to be repaid to your RRSP each year, starting within:
  - two years if your first withdrawal was taken on or before December 31, 2021
  - five years if your first withdrawal was taken between January 1, 2022, and December 31, 2025

Is it the right time to cash out your RRSP (i.e., this depends on the investments and rate of return you are getting on your current investment)?

Is it worth forgoing the future tax sheltered growth potential of your RRSP in favour of reducing the mortgage amount (including default insurance premiums, total interest costs, etc.)

Contact us today to see if withdrawing from your RRSPs is the best option - give us a call at 1-800-769-2511, or drop by your local branch to discuss the right strategy for you.