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How To Use Your RRSPs To Buy A Home

Using your RRSPs to buy a house is an option for first-time homebuyers who are saving for the down payment on their first home. With the many new rules facing home buyers, buying a home can seem like a daunting and stressful task. However, there are some rules designed to help out first-time homebuyers specifically, including the Home Buyers Plan.

What Is The Home Buyers Plan?

The federal government’s Home Buyers Plan is designed to help first time home buyers with the down payment on their first home. In this plan, you can withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP) or $50,000 for a couple.

Advantages Of Using Your RRSPs On A Down Payment

The most obvious advantage of borrowing from your RRSPs is the help it provides for saving for a down payment. If you’re looking at a 20% down payment (in order to avoid paying default insurance premiums) on a home in Ottawa, you’re looking anywhere from $50,000 to $80,000. This can be a difficult amount to save up to and borrowing from your RRSPs provides the assistance you might need to achieve that goal.

The Home Buyers Plan is also tax-free as long as you repay it within a 15-year period. Withdrawing your money through the Home Buyers Plan will count as a tax deduction the year that you withdraw which allows you to use any tax return to pay any other expenses associated with buying a home.

Considerations Of Using Your RRSPs On A Down Payment

Something to consider when thinking about borrowing from your RRSPs to buy a home is that it is, in fact, a loan. The Home Buyers Plan is tax-free if you repay it within that 15 year period which can add to the many new costs associated with buying a home. It’s certainly not a get out of jail free card and if you borrow outside of the Home Buyers Plan cap, you’ll have to pay taxes on it as well.

Another factor to consider when thinking about borrowing from your RRSPs for your first home is, is $25,000 enough? When you think about rising home prices in Ottawa, $25,000 doesn’t cover much of a 10% to 20% down payment on a home. In some cases, the home buyers plan can feel like a drop in the pond when you consider all the costs. In some cases, if you need that last little bit, utilizing the Home Buyers Plan is great. In other cases, it might not be the best option. Certainly, consult your financial institution to understand the risks.

As you can see, using your RRSPs to buy your first home has its pros and cons. But one thing is for sure, it’s an option for first-time homebuyers and one that should be considered. Saving for a down payment can be difficult and the Home Buyers Plan provides assistance. Certainly, speak with your financial institution and mortgage broker or, if you’d like to get in contact with us about a house you’re interested in, we’d be happy to help.

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Sources:

  • https://globalnews.ca/news/3265272/rrsp-home-buyers-plan-vs tfsa/
  • http://www.rbcroyalbank.com/mortgages/rrsp-home-buyers-plan.html?refmenu=help
  • http://business.financialpost.com/personal-finance/retirement/rrsp/should-you-withdraw-from-your-rrsp-to-buy-a-house

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