How does the Home Buyers’ Plan (HBP) work?
- The HBP allows you to withdraw up to $60,000 from your RRSP to put toward a qualifying first-home purchase.
- You have 15 years to repay the funds to your RRSP, with some exceptions.
- The HBP allows you to leverage tax-deferred savings and benefit from tax-free withdrawals.
- There are certain eligibility requirements, such as being a Canadian resident, being a first-time homebuyer and intending to occupy the home as your primary residence.
- The FHSA is another valuable tool that can get you closer to your homeownership goals.
Buying your first home is a major financial goal for many people. As more Canadians decide whether now is the right time to purchase their first home, it’s important to know what financial tools are available to help.
The Home Buyer's’ Plan (HBP) is a federal program designed to help make homeownership more affordable. Here’s everything you need to know about how the HBP works and how you can take advantage of it.
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What is the Home Buyers’ Plan (HBP)?
The HBP is an incentive program that allows you to withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) to purchase a qualifying home. RRSPs are registered investment accounts designed to help you save for retirement by deferring taxes. The benefit of the HBP is that it allows you to use your RRSP savings toward a first home, tax-free.
How can you make withdrawals for the HBP?
To take advantage of the HBP, you must contribute to an RRSP. Even if you don’t have the full allowable withdrawal amount ($60,000) invested in your RRSP, you can still leverage what savings you have built up because there’s no minimum withdrawal requirement. Plus, if you’re buying a house with your spouse or common-law partner, you can take out a maximum of $60,000 per person, allowing you to make a total withdrawal of $120,000 per couple. To withdraw under the HBP, funds need to be in your RRSP for at least 90 days prior to withdrawal.
Once you’ve decided how much you want to take out, you need to fill out form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds. Your financial advisor can help you navigate this process. Once you take out the money, you can use the proceeds toward the purchase of a qualifying home.
How does repayment to your RRSP work under the HBP?
You have up to 15 years to repay amounts withdrawn from your RRSP, Pooled Registered Pension Plan (PRPP) or Specified Pension plan (SPP). The repayment period starts the second year after the year when you made your first withdrawal from your RRSP under the HBP.
However, if you made your first withdrawal between January 1, 2022 and December 31, 2028, the 15-year repayment period starts in the fifth year following the year in which the first withdrawal was made. For example, if you made your first withdrawal in 2026, your first year of repayment will be 2031.
If you choose to start your repayments earlier, your repayment period stays the same. Any repayments made before you are required to start your repayments will reduce the amount you have to repay for the first year. If the early repayments are more than the required amount for the first year, the difference will reduce your HBP balance and the minimum required annual repayment amounts over the remaining repayment period.
Any amounts not repaid in a given year will be included in your taxable income for the year.
Why should you use the HBP?
Buying a home can be a significant up-front expense. The HBP allows you to borrow from your own savings “interest-free” rather than paying interest to borrow from a bank. However, by withdrawing from your RRSP under the HBP, you’ll lose the potential growth on that withdrawal.
The bigger your down payment, the smaller the mortgage you’ll need. Also, using the HBP may help you generate a down payment that’s above the 20% threshold of the total purchase price. Generally, this means you don’t have to pay for mortgage loan insurance, saving you more money in the long run.
Basic eligibility for the HBP
You must meet certain conditions to be eligible to participate in the HBP, including the following:
- You must be considered a first-time homebuyer by the CRA.
- You must have a written agreement to buy or build a qualifying home (there are special rules if you have a disability or if you are helping a related person with a disability buy or build a qualifying home).
- You must be a Canadian resident when you withdraw funds from your RRSPs under the HBP and up to the time a qualifying home is bought or built.
- You must intend to occupy the qualifying home as your principal residence within one year after buying or building it.
- If you have previously participated in the HBP, you may be able to do so again under certain conditions.
You and your partner could also benefit from the First-Time Home Buyers’ Tax Credit (HBTC), which is a non-refundable tax credit that helps cover some of the costs of purchasing a first home.
Using the First Home Savings Account (FHSA) to save for a down payment
The FHSA is a registered account designed to help Canadians save toward their first home. Like RRSPs, contributions are tax-deductible, and, as with TFSAs, investment growth and qualifying withdrawals are tax-free.
Once you’ve opened an account, you accrue $8,000 of contribution room annually, with a lifetime maximum of $40,000. There are also carry-forward rules to be aware of. Once you open an FHSA, the account can stay open for up to 15 years, or until December 31 of the year you turn 71 (whichever is sooner).
By combining savings from an FHSA with amounts available through the HBP, you can put more toward your down payment and reduce your overall mortgage.
The bottom line
Buying your first home can be both exciting and overwhelming. Luckily, the HBP is one program available to help make your homeownership journey easier. A financial advisor can help create a tailored plan to help you reach your first-home goals.