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Mortgage Math: RRSP Home Buyers' Plan [Video]

Update: On April 11, 2024, the Federal government announced an expansion to the withdrawal limit for the RRSP Home Buyers’ Plan, to $60,000 from $35,000. This will go into effect on April 16, 2024. This is the second time the withdrawal limit has been increased since it was introduced in 1992; it was last updated from a limit of $25,000 in 2019.

The new measure will also extend the amount of time home buyers have before they need to start making repayment instalments, to five years from the current two, for those who make HBP withdrawals between January 1, 2022, and December 31, 2025. 

Check out our blog to learn more about the government’s announcement.

*Maximum withdrawal amounts have been updated to reflect changes made in 2019

Together, with friends at The Loop by Sympatico.ca, we decided thatthe most commonly misunderstood part of buying a home is thecalculations that go along with it. As a result, Mortgage Math wasplanned and produced for homebuyers at any stage in the buyingprocess.

Buying a home is a huge investment and, for many first-time buyers, saving for a down payment can take years. However, there is a government program in Canada that allows eligible first-time buyers to withdraw up to $35,000* from their RRSPs to put towards their down payment.

Join us in our third Mortgage Math video as Toronto Realtor Lauren Haw walks us through the eligibility requirements and repayment process for the RRSP Home Buyers’ Plan.

Video Transcript:

Saving up for a down payment can feel like an impossible feat. So,if you’re a first-time home buyer in Canada, you’ll be happy to knowyou may be able to withdraw up to $35,000 from your RRSP tax-free.We’ve brought in Toronto realtor Lauren Haw to walk you through thedetails of the RRSP Home Buyers’ Plan.

In order to be eligible for the RRSP Home Buyers’ Plan, there are a fewrequirements you’ll need to meet. First, you cannot have owned ahome in the last four years. Next, you must sign an agreement tobuy the home and must intend to live in the property within a year.If you’ve used the Home Buyers’ Plan in the past, you cannot have anoutstanding balance. You must make the withdrawal within 30 days oftaking title of the home. And finally, the money has to be in the RRSPaccount for a minimum of 90 days prior to withdrawal.

If you satisfy all the requirements, you can withdraw up to $35,000towards your down payment. If you’re buying a home with yourpartner, and you both meet the requirements, you can each withdrawup to $35,000 towards a down payment, for a total of $70,000. Ifyou’re buying a home with your partner, but only one of you meetsthe requirements, that eligible partner can still withdraw up to $35,000from their RRSP. Think of this one-time tax-free withdrawal as a loan from your RRSPto yourself. The CRA requires that that loan is repaid within a 15-yearperiod.

Let’s take a look at how the RRSP Home Buyers’ Plan works.

The government requires that you make the first repayment two yearsfollowing your home purchase. So, in this example, our homebuyerpurchases the home in 2013 and withdraws $19,500 from their RRSPaccount; that means in the year 2015, they have to make their firstpayment.

Let’s figure out how much that payment is. We take the total amountof the withdrawal, $19,500, divide it by 15 years, and we come upwith the minimum payment. This minimum $1,300 payment must bemade each and every year.

You might be wondering what happens if that $1,300 payment is notmade. In any year you fail to make the minimum payment, you haveto claim the difference as taxable income on your annual return.

Going back to our original example, our minimum payment was$1,300. So, in a year you only make a payment of $1,000, wecalculate the difference to be $300, and that $300 has to be claimedas taxable income on your annual return.

Let’s take a look at what happens when you make a payment largerthan the minimum. In the year 2013, you purchased a home andwithdrew $19,500 from your RRSP. In the year 2015, you made yourfirst minimum payment of $1,300. In the year 2016, we make a largepayment of $8,075; that means from 2017 going forward, we need tocalculate a new minimum.

We do that by taking the original withdrawal amount and subtract thetotal paid so far. That will bring us to $10,125. We divide that newbalance by the 13 years remaining, to bring us to a new minimumpayment of $778.85.