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Val St.Germain - Investment Advisor
Val St.Germain
Investment Advisor
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RRSP Home Buyers Program

Updated Tuesday, February 9, 2010
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Using your RRSP to buy a home

If you're ready to buy a house, but don't have the cash for a sufficient down payment, you might be able to solve your problem by borrowing from yourself.

You can tap your Registered Retirement Savings Plan (RRSP) by taking advantage of the federal government's Home Buyers' Program (HBP). The HBP lets you make a tax-free withdrawal from your RRSP to purchase a home.

In essence, you'll be making an interest-free loan to yourself. You can withdraw up to $20,000 from a retirement plan, and your spouse can also withdraw $20,000. You can make a lump-sum withdrawal or a series of withdrawals in the same year.

You must repay the funds over a maximum of 15 years, with minimum annual payments of one-fifteenth of the amount borrowed. Repayment begins in the second year after the year in which you take out funds. If you don\'t make annual payments, unpaid amounts will be taxed as income.

The Home Buyers' plan is a trade-off between the need for home financing and sacrificing some of the future growth of your RRSP. That's why you should always weigh the potential mortgage savings against the returns your RRSP could generate. It's also important to get the money back into your RRSP as quickly as possible. That way you'll minimize the interruption of tax-deferred compounding on the money you've withdrawn.

Using RRSP funds for a home is often a good choice if it makes the difference between qualifying for a conventional mortgage or facing the increased costs of a high-ratio, insured mortgage. In times of high interest rates it may also make sense to borrow from yourself for a larger down payment. That way, you'll reduce mortgage interest costs.

However, there are restrictions on who can use the HBP, so make sure you qualify before making it part of your strategy.

Ask your financial advisor whether it makes sense to use RRSP money to buy a home. Your advisor can also help with the proper documentation and procedures to ensure your HBP withdrawal conforms with Canada Revenue Agency requirements.


 


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