One great source of funding for your mortgage down payment is a Registered Retirement Savings Plan (RRSP). The Canadian government’s Home Buyers’ Plan allows you to borrow from your RRSP up to $25,000 for a down payment, tax-free. Since this is a loan, it must be repaid, and the repayment term is 15 years.
First-time home buyer eligibility
In order to be eligible as a first-time home buyer, however, you must meet the following criteria:
•Not owned a home within the previous four years
•Sign a written agreement to buy a home
•Intend to live in the home within one year of purchase
•If you have used the Home Buyers’ Plan before, you can not have any outstanding balance due
•You must make the withdrawl from your RRSP within 30 days of taking title of the home
•You must buy the home before October 1st of the year after you made the withdrawal1
Each spouse is also considered separately for eligibility as a first-time home buyer. For example, if you have owned a home in the previous four years, but your spouse has not, then your spouse would be able to withdraw money from their RRSP under the Home Buyers’ Plan. If you too decide to make a withdrawal from your RRSP and have not met the first-time home buyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax statement as taxable income. If both you and your spouse meet the first-time home buyer eligibility requirements, each of you can withdraw up to $25,000 from your RRSPs, for a total of $50,000.
In order to participate in the Home Buyers’ Plan, you must print off a copy of Form T1036. This form is available from Canada Revenue Agency’s website (www.cra-arc.gc.ca). You must fill out Section 1, and give the form to the financial institution that holds your RRSP so they can fill out Section 2. Your financial institution will send you a T4RSP form, which will confirm how much you withdrew from your RRSP as a part of the Home Buyers’ Plan. You must reference this form in your income tax return for the year you made the withdrawal.
Repaying the Home Buyers’ Plan loan
Since the Home Buyers’ initiative is considered a loan, you must repay the amount you withdrew from your RRSP within 15 years, with the first payment due two years after you first withdrew the money. Canada Revenue Agency will send you a Notice of Assessment, which will indicate the amount of the loan you have repaid, the balance left to be repaid, and the amount of your next payment. To start repaying the loan, you must make a contribution to your RRSP in the year the repayment is due or in the first 60 days of the following year.