Home Buyers' Plan (HBP): What you need to know

The Home Buyers' Plan (HBP) is a government program that allows Canadians to borrow money from their Registered Retirement Savings Plan (RRSP) to purchase a home. This program can be beneficial for people looking to buy their first home, as it allows them to build up their equity faster.

The dwelling (house, condo, plex, etc.), which must be considered as the principal residence, can be new or existing.

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How does the RAP work?

The HBP allows a homebuyer to withdraw up to $35,000 from his or her RRSP for the purchase of a property.

Eligibility requirements for the Homeownership Plan:

To be eligible, you must meet certain criteria:

You must be a Canadian resident.
You must be considered a first-time home buyer. However, you will also be eligible for the HBP if, for a period of four years, you did not reside in a home owned by you, your spouse or common-law partner.
You must have an RRSP account.
You must be able to repay your HBP loan according to a pre-determined schedule.
Have an accepted offer to purchase, signed by both parties, on a home or the construction thereof.

How long do I have to pay back the withdrawn funds?

You have 15 years to repay all the funds you withdrew from your RRSPs for the HBP.

However, you can start repaying the money in the second year after the year the funds were withdrawn. For example, if you "raptured" in 2020, repayments would have to begin in 2022 and end 15 years later.

However, it is possible to start repaying the money in the first year.

The Canada Revenue Agency will determine the minimum repayment to be made each year for 15 years, in equal payments. Note that you have the option of repaying all or the balance of the amounts withdrawn at any time.

For more information on HBP refunds, refer to the CRA.

The HBP is a popular option for Canadians looking to buy their first home, as it allows them to maximize their down payment while minimizing borrowing costs.

Note that some RRSPs, such as locked-in or group RRSPs, do not allow premature withdrawals, even under the HBP.

Advantages and disadvantages of HBP

There are many advantages to HBP, but there are also some disadvantages to consider:

Benefits

Borrow from your RRSP without paying penalties, interest and taxes. By "rapping", you will maximize your down payment, reducing your mortgage. This means you'll be able to pay off your mortgage faster. In the end, you will save significant amounts of money in interest.
The HBP allows you to increase your down payment, which can help you get a better interest rate.
The HBP allows you to accumulate initial capital quickly, which can help you purchase a home sooner.
Avoid paying for mortgage default insurance. If your down payment is less than 20% of the purchase price of your home, you will be required to obtain mortgage default insurance provided by the Canada Mortgage and Housing Corporation (CMHC). As a result, the interest rates you will be offered will be significantly higher than those you could obtain with a down payment of 20% or more. Note that some financial institutions may even require a down payment higher than 20%, especially if you are self-employed or if you have a bad credit history. The HBP could help you provide the down payment necessary to obtain the best possible interest rate. You will avoid having to pay for mortgage loan insurance.
Use the funds as you wish: although the amounts obtained through the HBP are generally intended for the down payment, you are free to use them as you wish. You could therefore use the HBP to have more liquidity to cover the expenses that accompany the purchase of a property (transfer taxes, furnishings, renovations, etc.).

Disadvantages

The HBP reduces the value of your retirement savings, which can have an impact on your long-term financial security.
The HBP must be repaid according to a pre-determined schedule, which can be difficult for some people.
If you are unable to repay your HBP loan, you will have to pay taxes on the amount withdrawn from your RRSP.

How do I request a PAR?

To apply for an HBP, you must complete the Government of Canada form T1036. This form must be sent to your RRSP administrator for processing. You can withdraw funds from your RRSP up to 30 days before the purchase of your property.

Good to know

If you contribute to your RRSP before making an HBP withdrawal, you will be entitled to your tax deduction only if the funds have remained in your RRSP for at least 90 days. You may also be able to access the HBP if you purchase or build a qualifying home for a related person with a disability.

Conclusion

The Home Buyers' Plan (HBP) is a government program that allows Canadians to borrow money from their RRSPs to purchase a home. While there are many advantages, there are also disadvantages to consider. Before applying for an HBP, it is important to understand the eligibility criteria and the advantages and disadvantages associated with it. The HBP can be a useful tool to help Canadians purchase their first home, but it must be used thoughtfully. If you are considering using the HBP to purchase a property, it is recommended that you discuss your financial situation with a professional. A financial advisor can help you determine if the HBP is the best option for you and can help you plan your repayment. Ultimately, the HBP is a tool that can help Canadians become homeowners sooner, but it is important to understand the long-term implications before making a decision. If you have any questions about the HBP or about buying a home, don't hesitate to contact a professional.

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