[...] This is a very interesting strategy as it is used to boost your cash down for first home buyers. If you have a marginal tax rate of 40% and you have 20K RRSP unused contributions, you can take a 20K RRSP loan before buying the house. Under the HBP, you are allowed to withdraw your RRSP investments to buy a property tax free (as long as the money had stayed in your RRSP account at least 90 days). So you withdraw your 20K and payback the loan. Why do this? Because the 20K contribution will generate a 8K tax return the very same year. Therefor, you will have 17 years (15 years + 2 years of grace period) to put back the 20K in your RRSP account and you will benefit from an additional 8K right away to purchase your property. More info can be found in Million Dollar Journey’s post about HBP plan. [...]

I have taken out two RRSP loans, one for $8,000 for my own RRSP and one for $22,000 for my husband’s RRSP so that we can both have $25,000 for our upcoming home purchase.

1 – Can we take the money out under the HBP if we haven’t entirely paid back the loans?

2 – Is my husband eligible to take out $25K under the plan given that I am the contributor (I was clear with the bank that this was the whole point, I’ll be pretty upset with them if we can’t)

3 – My husband has bad credit and there is a good chance that the entire mortgage will be under my name. Can we still use his RRSP’s for our deposit?

Any advice would be greatly appreciated!

I had to reconfirm today some of the posts I read above about electing to NOT pay back into the HBP. Just so all know:

If you do not pay back your yearly amount required to the HBP when it is payable, you report that year’s amount for tax purposes..

For those who claim that your HBP balance isn’t reduced dollar-for-dollar by the amount you report for tax purposes, you are incorrect. You simply need to make sure you fill out schedule 7 (i believe I have the correct schedule) properly… When you add the HBP amount as income earned, make sure you do it properly. If the mistake was on your accountants end, I suggest changing accountants – as he or she clearly should not be manaing your personal tax affairs if this basic task can not be completed correctly!

For those who made the mistake on your own, just pay the $40 bucks to have a professional do your basic tax return.

–Brian

I am a financial planner in Ontario and you are correct. If you invest the money into an RRSP, take the refund for downpayment purposes and then withdraw the RRSP to pay off the loan, then yes there is another cost that most ppl forget. The RRSP withdrawal is added as taxable income for the year it is withdrawn to pay the loan, and so it essentially eliminates the refund you received. For example, you invest 20K at a 40% tax bracket and receive an $8,000 refund. You use 8K for your home purchase and then when you take possession you sell the RRSP to pay off your loan. The problem comes when you file taxes next year. You’d better be prepared to pay that $8,000 tax liability owing!

Secondly, for those who are taking there savings to invest, just to take it out under the HBP in 90 days, you might want to think this strategy through. Let’s suppose you do this in the lowest marginal tax bracket. You’re tax refund won’t be that much, and you’re simply taking back your own money out through the HBP… If you suspect you’ll be in a much larger tax bracket in the future due to increased earnings, think about this strategy and whether it makes sense. If the corresponding refund will help you avoid CMHC costs, then perhaps its worthwhile. But if you don’t need the refund or it would be more advantageous to take the refund in future years, then think twice before this strategy…

sorry but i am a little dork about RRSP and HBP. Can someone give me advise on how to repay the HBP?
I got an statement from revenue about the RRSP i borrowed and repay the HBP. What is the step by step procedure to start processing this?
Please help me.. all the info. i get is much appreciated…

Thank you

Let’s say I withdrew $25K from my HBP but find out that I’m not eligible. I already know that the CRA will add the $25K as income which will be taxed.

If I contribute the $25K back into RRSP will that negate the tax I would have to owe?

Also would I be able to participate in the HBP again?

Let’s say I withdrew $25K from my HBP but not eligible. I know that the CRA adds it as income which will be taxed.

If I contribute the $25K back into RRSP will that negate the tax I would have to owe?

Also would I be able to participate in the HBP again?

Most banks will be happy to help you with the HBP. BMO actually had a pamphlet on how to do it. First you need at least 20K in available RRSP contribution room. Then the bank gives you an RRSP loan for 20K. You contribute it and get a tax refund for 20K*marginal tax rate (this is usually over 6K). After 90 days, you withdraw the original 20K contribution and pay off the bank loan. Your only costs are the interest on the loan for 3 months.
In essence what you are doing is immediately getting the tax refunds for 20K in future RRSP contributions.
Some people will say you lose the value of compounding – you don’t with this plan since the money was never yours.
Most people have available RRSP contribution room so that’s not an issue either.

Maybe you are thinking of example where people boost their RRSP contribution by taking out an RRSP loan and then taking the tax refund to pay off the loan.

Here is an example: you are in the 40% tax bracket and you have $10,000 contribution room but only $6k to contribute. You boost your RRSP contribution by borrowing another $4k at prime (usually you can get prime from a bank if you invest it at the bank). You contribution is now $10k which will net a $4k refund. You pay down the RRSP loan with your tax refund and the out of pocket cost is the interest on the RRSP loan. The loan could be paid off within 2 weeks if you contribute on Feb. 28 and use Efile to send in your tax return right away.

My husband and I owned a home in Denver Colorado that was our primary residence which we sold in June 2007. We moved to Canada immediately after selling the house and have been renting ever since. Do we still qualify as a first-time home buyer for the HBP?

[...] contributing directly into your RRSP and then use the Home Buyer’s Plan (you can see a very nice description of the HBP over @ Million Dollar Journey), you should now consider using your TFSA [...]

You have to meet this condition at the time you withdraw an amount from your RRSPs under the HBP.”

We have a house,primary residence.It solely in my wife ’s name.Can i be considered a first time buyer,if I purchase another property(under my name only) using the HBP?
Thanx

I see that JC posted the same question that I would like to resolve. My girlfriend is not a first time home buyer, but I am. I assume that I can use my full amount, but what is the limit to the value of the house? The rules state that $450k is the max, but does it change if two people are involved?

$450k doesn’t buy you too much in Victoria!
thanks,
Mike

I think you’re confused on something.. with the HBP, you are using money that you’ve already put into an RRSP. So to answer a), you would need to wait until you contributed 25K to withdraw it. As far as contributing to an RRSP, the banks are usually more than willing to lend you money (since they get the interest) as long as your credit is good.

a) How long do I need to wait before I can get $25k towards my downpayment?

b) Secondly, at the moment I haven’t been able to put in any money into RRSP yet, will the banks still loan me the money and I can give it back on yearly basis?

I am fairly new to this concept so any help would be appreciated!

Thanks!