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How the RRSP Home Buyers Plan (HBP) Works

When I bought my first home when I graduated in 2003, I was fortunate enough to have some cash saved for a down payment. Most young people, however, don’t have this luxury but they have some money in an RRSP. In this particular situation, using the RRSP First Time Home Buyers Plan (HBP) can be of great benefit.

What is the HBP?

The RRSP Home Buyers plan is a program that allows first time home buyers to withdraw up to $20,000 $25,000 (as of 2009 federal budget) from their RRSP towards their first home TAX FREE.

How does it work?

As mentioned above, if you are a first time home buyer, you can withdraw up to $25,000 out of your RRSP tax free! If you are purchasing the home with a spouse, you can both withdraw $25k EACH from your accounts. In terms of repayment, you have up to 15 years to pay back your RRSP starting the second year after the year of withdrawal (from govt website). At this time 1/15 of your borrowed amount must be paid back / year.

What’s the catch?

  • In terms of penalties, if you don’t repay 1/15 of the borrowed amount / year, you’ll have to add the amount as income.
  • You MUST be a first time home buyer and a resident of Canada at the time of withdrawal.
  • You MUST purchase/build the home before Oct 1 after the year of withdrawal.
  • RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.

Why would I do this?

This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. Some may argue that you’re missing out on growth in your RRSP while the money is borrowed. However, I think that if you get a good price for your first home relative to others in the neighborhood, the appreciation of the home will hopefully make up for this.

On top of that, aggressive RRSP contributions after purchasing the home should be part of the plan. Here is the government site that explains the HBP program in detail: Home Buyers’ Plan (HBP)

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FrugalTrader About the author: FrugalTrader is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 262 comments… add one }

  • armaan September 16, 2013, 2:16 pm

    Hello,

    I withdraw 10K from my RRSP And 5K from my spouse RRSP under HBP plan.

    Now its time to repayment. I have my own RRSP Account and i will deposit my due for this year.

    For my spouse, can i open spousal RRSP and deposit money in my spouse account so that it can be consider has her repayment for the loan.

    I am asking this question here, because i went to TD and they informed to me that my spouse need to repayment loan by herself.

  • Dan September 16, 2013, 8:55 pm

    @art I believe you need to be considered a first time buyer 5 years prior, so since it has been less than 5 yrs you likely cant take advantage of the HBP

    @armaan the money needs to be repaid to the account it was taken from. Since the money was taken from your spouses RRSP it needs to be paid back there, but you could always give him/her the cash and get them to do the repayment

  • Henry October 18, 2013, 12:45 am

    Hello,

    I have a question regarding the use of RRSP for the first time HBP.
    I have 13k in my RRSP account under my name and I am qualified as the first time home buyer. I understand I can withdraw up to 25k but unfortunately I haven’t saved enough. So I still have 12k to use for the first time HBP, my question is can I withdraw this 12k later year by year as the first time HBP?

    For example: I buy the house in Dec 01 2013 and withdraw 13k from my RRSP as first time HBP.

    And then I contribute 5k to my RRSP in the 2013 tax year and can I withdraw this 5k amount 3 months later as the first time HBP?

    And in the 2014 tax year, I will contribute another 7k to my RRSP and can I withdraw this 7k amount 3 months later as the first time HBP?

    All your answers are much appreciated.
    Many thanks,
    Henry

  • Lanette October 18, 2013, 11:33 am

    The HBP is a one-time withdrawal up to a $25K maximum, meant to assist with a downpayment, so you would not be able to draw on the remaining room after your initial purchase.

  • Diane February 1, 2014, 10:41 pm

    My understanding is that at age 71, a HBP participant has three choices – one of which is to have the annual repayment amount considered to be income on his or her tax return and obviously, pay the required tax on that. One question that comes to mind is: Would that “income” amount have an impact on GIS? (i.e, would or could it be considered part of the $3500 exemption amount).

  • Dave June 17, 2014, 2:56 am

    I took out 5000$ to put down on a house which looks like it will fall through due to house inspection. Because I transferred this out of my RRSP already does that mean I can’t do it again? Or because I did not use it to purchase a home can I retry at a later date? Thanks!

  • Jenny February 27, 2015, 6:47 pm

    Hi There,

    I took out the full 25K for my first time HBP. I have lived in the property for 3 years and am now planing to travel for 1 year. Can I claim the entire value of my HBP as my income for my year of travel?

    Thanks,

  • karmen June 4, 2015, 3:35 pm

    Do I have to purchase a home in Canada?

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