New mortgage rules are coming into effect in January 2018 so now is the time to buy for anyone who does not want to be impacted by the changes. If you have not had time to save up for your down payment, borrowing from your RRSP is a viable option. Here is what you need to know.
1. You will need to access the Government of Canada’s Home Buyers’ Plan
In order to use your RRSP savings as a down payment on your first home, you will also need to apply to the Government of Canada’s Home Buyers’ Plan (HBP). The HBP allows Buyers to withdraw up to $25,000 from their RRSPs to fund their home purchase and does not require them to pay tax on the withdrawal. The HBP eligibility criteria are straightforward. You need to be considered a first-time Buyer and you must have a written agreement to build or buy a home that meets the program’s qualification criteria.
2. You will need to meet the RRSP conditions set forth in the HBP
In addition to meeting the eligibility conditions set forth by the HBP, you will also need to meet separate RRSP withdrawal criteria. The criteria are listed below.
- You must be a resident of Canada.
- You must receive all related withdrawals in the same calendar year.
- Withdrawals are limited to a maximum of $25,000 per person. This means a couple can withdraw up to $50,000.
- Withdrawals can only be accessed by the person eligible to receive payments from the RRSP.
- Contributions must have been in the RRSP for a minimum of 90 days before they can be accessed.
In order to access RRSP funds under the HBP, Buyers are required to fill out FormT1036 for each eligible withdrawal. This form can be accessed here.
3. You can still be eligible for the HBP even if you have owned a home before
While the HBP is predominantly marketed to first-time Buyers, people who have previously owned a home may also be eligible to participate in the program and withdraw from their RRSP to fund a home purchase. You are considered a first-time buyer if in the previous four year period, you have not lived in a home owned by yourself, your spouse, or a common-law partner.
4. There may be tax implications
If any of the conditions of the program are not met, RRSP withdrawals may not be considered eligible under the HBP and that amount must be reported as income on your annual income tax return for the corresponding year. To avoid this, be sure to work closely with your Realtor, accountant or investment advisor, and mortgage broker to ensure that there are no surprises or delays in meeting conditions.
5. You will need to pay back your RRSP
You will have up to fifteen years to pay back the borrowed amount and are expected to begin repayments within two years of when you made the initial withdrawal. Typically, homeowners pay 1/15 of the total withdrawal amount annually until the loan is paid in full. If payments are not made as required, the repayment amount is included as income on your annual tax return and may be subject to taxation.
If you have been considering buying a home before the end of 2017, the HBP may help you to realize that dream! There is no “one size fits all” solution in real estate, so take the time to review your personal circumstances before making a decision. Assembling a team of professionals who are in your corner, such as a Realtor, mortgage broker, and accountant can help make this process easier and far more successful! If you have questions about the HBP and buying a home, please call me! I am happy to answer your questions and help you find your pathway home.