How does the RRSP Home Buyers' Plan work for first-time homebuyers?
Many first-time homebuyers ask the question, “Can I use my RRSP to buy a house?” The answer is yes! A government-backed initiative called the Home Buyers' Plan enables eligible buyers to take out a portion of their RRSP funds to use as a down payment on a home.
The Home Buyers’ Plan is accessible to all first-time homebuyers with a written agreement to buy a house in Canada. The best part of the HBP is that the withdrawal made is not subject to tax as long as you repay it within 15 years. You can currently withdraw up to $60,000 of your RRSP savings, with the amount reaching $120,000 for couples. Below is a checklist to determine if you are eligible for the Home Buyers’ Plan:
- Be Considered a First-Time Home Buyer – You have not occupied a qualifying home in the last four years
- Have a Written Contract to Purchase or Build a Qualifying Home – The agreement must be shown as proof to use the Home Buyers’ Plan
- Be a Canadian Resident – You must be a resident at the time of the withdrawal and until the qualifying home is purchased
- Plan to Occupy the Home as Your Primary Residence – You must occupy the home within a year of purchase completion date (If you're considering using your RRSP to buy an investment property, note that the HBP is meant only for owner-occupied homes)
If you meet all four of these conditions, you’ve just taken the first step towards using the RRSP Homebuyers’ Plan to fund your home purchase! So, what’s next? Let’s look at a breakdown of the next steps toward withdrawing and repaying funds from the account.
- Determine How Much You Can Withdraw – Calculate how much of your RRSP funds are available for withdrawal (up to $60,000 per individual or $120,000 per couple)
- Submit the Home Buyers’ Plan Request – Complete the T1036 withdrawal request form for approval from your financial institution
- Use The Funds For Your Home Purchase – Ensure that the money is withdrawn and used towards your home within the contract’s required timeframe
- Understand Your Repayment Responsibilities – Plan out your 15-year repayment schedule to avoid unexpected tax liabilities
Can I use my RRSP funds for a mortgage down payment under the Home Buyers’ Plan?
As mentioned previously, you can absolutely use your RRSP for a mortgage down payment, but is it the right option for you? The Home Buyers’ Plan has both pros and cons that may help you weigh your options:
| Pros of Using RRSP To Buy a House | Cons of Using RRSP To Buy a House |
|---|---|
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"The RRSP Home Buyers’ Plan is a fantastic tool for first-time buyers, but it’s important to take time and weigh the benefits against other alternatives. A well-planned down payment strategy can make all the difference in securing the right home and maintaining long-term financial flexibility."
Yen Nguyen - Mortgage Agent Level 2
If maximizing long-term retirement savings is a high priority, you may want to consider whether or not the forfeited investment growth outweighs the benefit of a reduced mortgage. However, if reducing your monthly payments is your first priority, the HBP can be prove to be an effective tool.
Knowing how much you can remove from your RRSP under the HBP is crucial for making an informed decision. The calculator table below provides a simple breakdown to guide you in determining your available funds.
| RRSP Available Balance | Amount Available for HBP Withdrawal |
|---|---|
| Less than $60,000 | Full Balance (up to your available amount) |
| More than $60,000 | Max $60,000 |
| Couples (both eligible) | Max $120,000 ($60,000 per person) |
| Recent RRSP Contributions (within 90 days) | Not Eligible for Withdrawal |
What are the repayment terms when using RRSP for a mortgage?
While the 15-year repayment schedule may seem daunting, it becomes much more manageable once you understand how it works and some best practices.
You must return at least one-fifteenth of the withdrawn funds annually, with repayments starting two years from the withdrawal. If you miss a payment, the unpaid amount will be considered taxable income. To accelerate the process, you can repay more than the minimum amount or even pay off the full amount early without penalty. Below is a timeline depicting a sample repayment schedule:
(Repayment Schedule for a $60,000 Withdrawal Made in 2025)
| Year | Minimum Annual Repayment | Remaining Balance |
|---|---|---|
| 2025 | No Repayment Required | $60,000 |
| 2026 | No Repayment Required | $60,000 |
| 2027 | $4,000 | $56,000 |
| 2028 | $4,000 | $52,000 |
| 2029 | $4,000 | $48,000 |
| 2030 | $4,000 | $44,000 |
| 2031 | $4,000 | $40,000 |
| 2032 | $4,000 | $36,000 |
| 2033 | $4,000 | $32,000 |
| 2034 | $4,000 | $28,000 |
| 2035 | $4,000 | $24,000 |
| 2036 | $4,000 | $20,000 |
| 2037 | $4,000 | $16,000 |
| 2038 | $4,000 | $12,000 |
| 2039 | $4,000 | $8,000 |
| 2040 | $4,000 | $4,000 |
| 2041 | $4,000 | $0 |
By creating a similar schedule and maximizing contributions, you can strategically repay your RRSP withdrawal while continuing to build your retirement savings.
Case Study
John is a 30-year-old accountant who has been renting an apartment in Toronto for a number of years but dreams of owning a home. John knows that obtaining a sizable down payment is essential to lowering monthly mortgage expenses as real estate values continue to rise.
After years of diligent saving , John was able to set aside $100,000 for a down payment, targeting an $800,000 home. John was able to increase the down payment and make home ownership a reality by taking out an extra $60,000 from his RRSP under the Home Buyers' Plan.
| Without Home Buyers’ Plan Withdrawal | With Home Buyers’ Plan Withdrawal | |
|---|---|---|
| Home Price | $800,000 | $800,000 |
| Down Payment Amount | $100,000 | $160,000 |
| Down Payment % | 12.5% | 20% |
| Mortgage Amount | $700,000 | $640,000 |
| Monthly Payment Amount | $4,443 | $3,975 |
By leveraging the Home Buyers’ Plan, John was able to increase his down payment from 12.5% to 20% , reducing his mortgage payment by nearly $500/month . In the long run, the lower mortgage balance will save John tens of thousands of dollars in interest expenses.
John’s situation is the perfect example of how you can use the Home Buyers’ Plan to maximize your down payment and reduce your monthly payments. The program makes home ownership more affordable and accessible for Canadians. By carefully weighing the advantages of a lower mortgage against the repayment commitment, you can make an informed choice that supports your long-term financial objectives and your home ownership goals.
For more information on how you can achieve your home ownership goals, Contact Clover Mortgage today!
FAQ
Are there limits to how much RRSP money I can use for my mortgage?
Yes. Up to $60,000 of your RRSP funds may be used for a mortgage under the Home Buyers' Plan ($120,000 for couples). This amount is set by the Canadian Government, though changes are made from time to time.
Can I use the Home Buyers’ Plan to make monthly mortgage payments?
No. The Home Buyers’ Plan is only meant to be used for a mortgage down payment. In order to make the one-time withdrawal, you must have a written agreement to purchase or build a qualifying home, meaning you cannot use it on a recurring basis.
What happens if I don’t recontribute the Home Buyers’ Plan withdrawal within 15 years?
Any amount of your RRSP withdrawal that is not repaid within the allotted 15 years will be included in your taxable income. This means that you will pay income tax on the amount, forfeiting the tax-free benefits of your RRSP.
Can I Use My RRSP to Invest in Real Estate Instead of Buying a Home?
Yes, but not through the Home Buyers’ Plan. While the HBP is strictly for purchasing a primary residence, another option for using your RRSP funds in real estate is a self-directed RRSP mortgage.
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