In this write-up, we will try to get clarity around one excellent instrument for First Time Home Buyers given by the Government of Canada. This is Home Buyers Plan.

This excellent program of Home Buyers Plan often gets ignored due to poor planning around first home purchase. If you are a first time home buyer government provides RRSP withdrawal plan (Home Buyers Plan – HBP), this withdrawal can be used to contribute towards your down payment for your home. The down payment is your contribution towards the purchase.

Let's review the main Prerequisites for qualifying for this program:
> You must be a Canadian Resident at the time of withdrawal.
> The money should have been deposited in the RRSP at least 89 days before withdrawal under HBP.
>You or your spouse didn’t own a home in last 4 years for e.g. if you sold your previous home in 2017. or earlier, you would be eligible for HBP in 2022.
>Withdrawal from RRSP under this program should be done within 30 days of buying the home.>
If you have used HBP earlier, there should not be any balance left for repayment.
> Finally, you should have a written agreement to buy the home.

Benefit:
The money withdrawn for the down payment of your home is completely tax deductible for tax filing of that year. Essentially, this can be viewed as an interest-free loan which you take from your RRSP funds.
There is also a withdrawal limit of up to 35,000 per person, so a couple can at a maximum withdraw 70,000 from their RRSP and contribute towards home purchase.
This benefit in withdrawing your own RRSP money comes in handy to ensure that you can accumulate your 20% down payment and avoid the mortgage default insurance premium while securing mortgage from financial institution.

Repayment: You have 15 years to pay back the money into your RRSP, it has to be repaid with minimum of 1/15th of the amount you withdrew annually and completed in 15 years. You can repay in full before 15 years if you so desire. The repayment starts second year after the year you withdrew the funds from your RRSP under this program.

Also, it would be pertinent to note that your RRSP deduction limit is not affected by HBP.

Let us now have a look at Repayment Example to understand it better,
Suppose you withdrew 15,000 under HBP from your RRSP account for home purchase in Jan 2017, here you can review this chart that indicates how the payments per year will be scheduled and when they start, including scenario how future payments would be affected if you pay extra in a given year.
Repayment starts 1 year after the withdrawal year, in our case it is 2019. Payment amount is $1,000 per year, we get by dividing the withdrawn amount by 15. Extra payment we made in 2021 for  $3,000. So, in 2022 the amount is calculated to take into account the extra payment made in 2021. The new yearly amount will be simply the remaining balance divided by remaining years. So, in our case it would be $9,000 divided by 12, so it would be $750 for the remaining years starting from 2022.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]