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- What is the HBP?
- The eligibility conditions
- Should you use the HBP?
Photo by Kevin Wolf on Unsplash
For first-time homebuyers, the Home Buyers’ Plan (HBP) allows the withdrawal of funds from a registered retirement savings plan (RRSP), tax-free.
It’s a smart way to benefit from tax deductions provided by RRSP contributions while accumulating the necessary funds to purchase a property. Nearly 20% of Québec residents have used the program.
But is it always an optimal solution to borrow from your RRSP in order to buy a first home?
Photo by Boyan Lepoev on Unsplash
Here are some key elements to consider.
Am I eligible?
You qualify as a first-time home buyer if, in the last four years, you did not live in a home you owned, or one that was owned by your spouse/common-law partner.
A qualifying home has to be purchased or built before October 1st of the year following the withdrawal.
Qualifying types of property:
- Single-family homes and semi-detached homes
- Townhouses
- Mobile homes
- Condominium units and apartments in a duplex, triplex, quadruplex or an apartment building
*Different conditions apply for people with a disability or someone related to them.
How much can I withdraw from my RRSP?
A single person can withdraw up to $35,000, tax-free. The amount becomes a loan which must then be repaid over the next 15 years.
Photo by Soroush Karimi on Unsplash
Spouses or common-law partners buying a home together can both borrow out of their respective RRSPs, for a combined total of $70,000.
Should I take as much as I can out of my RRSP to reduce my mortgage?
Despite offering a tax-free incentive, the HBP still has an opportunity cost. While the funds are withdrawn from an RRSP, they don’t generate investment income. Over time, the reduced spending on mortgage interests and loan insurance might show a lesser return than your retirement savings.
If you already have the amount needed for a down payment, a financial advisor and a mortgage broker can help you figure out the optimal amount to withdraw, if any.
Is the HBP right for you? Get in touch with one of our experts at MCB Group.
