the home buyer plan: helping you buy your first home

If you're a Canadian citizen or permanent resident planning to buy your first home, the Home Buyer Plan (HBP) can be a useful tool to help you reach this monumental milestone. This first-time home buyer incentive allows you to withdraw funds from your Registered Retirement Savings Plan (RRSP) to contribute to your first down payment, which can provide a significant tax advantage and positively impact your long-term financial security. 

How does the Home Buyer Plan work?
The HBP allows you to withdraw up to $35,000 from your RRSP tax-free to use towards the purchase of your first home. This withdrawal is considered a loan, meaning you must repay the amount you withdrew over a 15-year period, starting the second year after you make the withdrawal. You can repay the loan anytime, but you must make a minimum payment each year to avoid penalties.

To be eligible for the HBP, you must meet the following criteria:

• You must be a Canadian citizen or a permanent resident.
• You must not have owned a home in the four years before the year you make your HBP withdrawal.
• You must have a written agreement to buy or build a qualifying home.
• You must intend to live in the home as your principal residence within one year of buying or building it.

It's important to note that you can only use the HBP once in your lifetime, and if you don't repay the full amount you withdrew within the 15-year period, the outstanding balance will be considered taxable income in the year it's due.

What are the benefits of using the Home Buyer Plan?
There are several benefits to using the HBP to help you purchase your first home. First and foremost, it allows you to access your RRSP savings tax-free, which can be a significant financial advantage. Additionally, by using your RRSP savings as a down payment, you may be able to avoid paying mortgage default insurance, which can save you thousands of dollars over the life of your mortgage.

Using the HBP also allows you to invest in your future while still achieving your goal of homeownership. By repaying the amount you withdrew from your RRSP over a 15-year period, you're essentially paying yourself back with interest. This can be a smart way to build your savings over time while still achieving your goal of owning a home.

What are the drawbacks of using the Home Buyer Plan?
While there are many benefits to using the HBP, there are also some potential drawbacks to consider. 

In addition to depleting your RRSP, if you cannot repay the full amount you withdrew within the 15-year period, you'll be responsible for paying tax on the outstanding balance. This can be a significant financial burden, and it's important to have a plan in place to ensure that you can make your repayments on time.

Overall, the Home Buyer Plan is a helpful program to consider on your journey to home ownership. By accessing your RRSP savings tax-free and paying yourself back over time, you can achieve your dream of owning a home while still investing in your future. However, it's important to assess if this incentive works for your lifestyle and goals. A licensed real estate professional will serve as your trusted advisor to help you navigate this exciting process. Click here to find a rennie advisor who specializes in first-time home ownership.