How the Home Buyers' Plan (HBP) can help you become a homeowner (2024)

The Home Buyers' Plan (HBP) is a government program that lets you withdraw money from yourregistered retirement savings plan (RRSP)to buy a home.¹An important thing to remember though is that you’ll need to repay the amount you've borrowed from your RRSP within 15 years.

You'll also need to meet certain eligibility requirements to qualify for the HBP:

• You must be afirst-time homebuyer
• You'll need a written agreement to buy or build an eligible property in Canada for yourself or for a related person with a disability²
• You have to be a Canadian resident

A few other important details:

• The home must be located in Canada, and it must be bought or built by October 1 of the year following the year you withdraw funds. (For example, if you started to withdraw funds on January 1, 2023, then you need to complete the purchase or construction of your home by October 1, 2024.)
• You or the person with the disability must live in this home — ex. it has to be your principal residence — within one year of buying or building it.

There can be different eligibility criteria that applies to you and your spouse or common-law partner. For example, even if you live together, you could still qualify as a first-time homebuyer if your partner is the sole homeowner.

Also, if you and your partner lived apart for at least 90 days for the past four years, you may be eligible to withdraw funds through your HBP.

Even if you're not planning a big move, you may have an unexpected opportunity outside of Canada. If you become a non-resident of Canada either before or after you purchase a home, be sure to follow the specified rules and fill out certain sections when filing your taxes.³

There are several advantages to having an HBP:

• It gives you the ability to have an interest-free loan, as long as you follow the repayment plan.
• You can borrow up to $60,000 to put towards your down payment.
• You can use the HBP in combination with other registered accounts to save towards your home, like the first home savings account (FHSA) and tax-free savings account (TFSA).

For eligible first-time homebuyers, the current maximum withdrawal limit is $60,000 in a single tax year. For a couple, if each individual has their own RRSP and can withdraw $60,000 each, they can withdraw a combined total of up to $120,000.

Please note that effective April 17, 2024, the maximum HBP withdrawal limit was increased from $35,000 to $60,000. If you withdrew the maximum amount of $35,000 from your RRSP under the HBP, prior to April 17, 2024, you can withdrawan additional amount of $25,000 from your RRSP under the HBP before December 31, 2024, provided you meet the HBP withdrawal criteria for each withdrawal.

There's one restriction: you aren't allowed to withdraw from a locked-in RRSP or group RRSP.

To start receiving funds, you'll need to fill out the T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP form.⁴ If you have multiple RRSPs, you'll need to submit forms to each financial institution.

It's essential to plan ahead for when you think you'll need to withdraw your money. That's because your contributions need to remain in your RRSP for a minimum of 90 days before you can withdraw them under the HBP. After 90 days, you can start withdrawing money for your down payment.

If you don't follow the HBP 90-day rule, the contributions may not be deductible for any year.

Eventually, you'll have to repay the funds to your RRSP. The repayment period begins two years after you began to withdraw funds. To make repayments, you can make contributions towards your RRSP in the year that it's due or within the first 60 days of the following year. You'll have up to 15 years to pay everything back.

If you make a first withdrawal between January 1, 2022, andDecember 31, 2025, the start of the 15-year repayment period has been deferred by an additional 3 years (you now have five years to begin repayments, instead of two).

For example, if you start withdrawing money in 2023, you'll need to start repaying the funds in 2028 and will have until 2043 to complete the repayments. Let's say you took out the full $60,000. You'd owe $4,000 annually for 15 years. If you take that amount and divide it by 12, the monthly payment would be $333.33.

You'll receive a statement about your account balance each year. You can also view the balance you owe using the Canada Revenue Agency's My Account or mobile app.

One thing to keep in mind: each year, you'll be required to pay a minimum amount, and there are consequences for missed repayments of your annual amount. If you pay less than the required annual amount or none at all (up to 1/15th of the amount), you'll have to report the difference on line 12900 of your tax return as it will be counted as RRSP income for that year.

On the other hand, if you repay more than the annual amount, the HBP balance for future years will be reduced accordingly. You'll still be required to make repayments for the following years until your balance is zero.

Not all contributions can be designated as repayments. For example, the contributions you make to your common-law partner or spouse's RRSP or specified pension plan (SPP) aren't considered repayments.⁵Be sure to review all the rules to find out what are considered to be repayments.⁶

HBP withdrawals will affect your income tax returns and taxable income. In other words, this means more tax forms.

When you begin making repayments to your RRSP, you'll need to fill out the following form every year you file your taxes until the balance is repaid in full: Schedule 7, RRSP, PRPP, and SPP Unused Contributions, Transfers, and HBP or LLP Activities.⁷

Some good news: as a first-time homebuyer, you may also be eligible for additional tax credits:

• First-Time Home Buyers' Tax Credit, which for 2022 provides a tax credit of up to $1,500.⁸
• GST/HST new housing rebate, which allows eligible homebuyers to recoup a portion of the federal and/or provincial taxes they've paid for a new or renovated home.⁹
• First-Time Homebuyer Incentive, which gives eligible new homeowners an interest-free loan between 5% to 10% of a home's price to help lower their mortgage payments.¹⁰

The reality is, many first-time homebuyers need down payment assistance. The newest investment option is the tax-free First Home Savings Account (FHSA), which allows you to contribute up to $8,000 per year, up to a total of $40,000, that can go towards your down payment.

Don't forget the Tax Free Savings Account (TFSA), where you can contribute and let your money grow tax-free. The contribution limit for 2023 is $6,500. Find out your what your lifetime contribution room through your myCRA account. ¹¹