First-time homebuyer?

Your RRSP may be the down payment you’re looking for

Thinking about buying your first home? Wish you
had saved up a good down payment? Maybe
you have, but didn’t know it. First-time homebuyers
can tap into their RRSP to help with a home
purchase. Designed to help first-time buyers get
into home ownership, the federal Home Buyers
Program lets you access tax-free monies for use
towards the purchase or even construction of
your first home.

Why tap into your RRSP? The most common
reason is to boost the down payment on a home.
The bigger your down payment, after all, the
smaller your mortgage. And you may qualify
for better interest rates too; your healthy down
payment shows the lender that you are a low risk
candidate for a mortgage loan. Your RRSP can
help provide the funds for a down payment
that will make a difference to your costs in
the long run.

Here’s how it works. If you’ve been contributing
to an RRSP, then you already know that the
program is designed to set aside money for
retirement, with the money going into the program
tax-free (and the plan to pay taxes on the funds
when they’re withdrawn later). But there are some
valid reasons why you may want to access these
funds earlier. A home purchase may be one of
them. As a first-time homebuyer, you are allowed
to withdraw money: still tax-free, provided you
adhere to the easy repayment plan. (Just make
sure, of course, that your RSP is not a locked in
plan). You can withdraw up to $25,000.00 from
your plan. If your spouse qualifies as a first-time
homebuyer, then he or she will also be able to
withdraw $25,000.00. Between the two of you,
you could possibly have a hefty down payment
sum of $50,000.00. That’s enough to make a
substantial difference in the affordability of
home ownership!

Check online or ask your mortgage professional
for more information – there are some conditions
that you should know about. For example, you
need to spend the money once it’s withdrawn:
you must enter a written agreement (offer to
purchase) before you can withdraw money.
And you are expected to complete the home
purchase no later than October 1 of the
year following your withdrawal. And don’t
spread your withdrawals out; all HBP-eligible
withdrawals must be made in the same calendar
year. Above all, you must meet certain repayment
terms. Repayment to your RSP begins the second
year following the year of withdrawal. You have
up to fifteen years to repay, and each annual
repayment must be at least one-fifteenth of the
withdrawn amount.

A common question: so who exactly qualifies
as a first-time homebuyer? What if one partner
has owned a home before, for example? Well,
it often happens that only one partner qualifies
as a first-time homebuyer, so only one RRSP can
be tapped for funds. But if either of you has not
owned a home for the past five years, then you
meet the description of a first time homebuyer!
Keep that definition in mind as you plan the
timing of any RRSP withdrawals.

Any kind of home qualifies for the program –
detached, semi-detached, mobile, condominium,
etc. – as long as it is located within Canada.
If you’re thinking of using your RRSP for your first
home purchase, consider meshing your RRSP
strategy with your down payment savings. Putting
away funds in your RRSP not only saves you the
current income tax, but the tax saved translates
into more dollars towards your down payment.

It’s not too soon to begin a conversation
with a mortgage specialist about your
future plans for home ownership.
A good plan is always a great beginning!