How does the Home Buyers’ Plan Work?

Buying your first home may be one of the most important decisions you’ll make. Housing affordability has been in the news in Canada for what seems like forever. But with interest rates at their highest levels in years, home prices have started to fall in many parts of the country. As more Canadians decide whether now is the right time to enter the property market for their first home, it’s important to know what financial tools are available to help.

The federal budget announced as of April 16, 2024, The Home Buyer's Plan (HBP) lets first time home buyers withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to help finance the purchase or construction of a new home. 

What is the Home Buyers’ Plan?

The HBP is an incentive program that effectively allows Canadians to use up to $60,000 of their own RRSP savings as a loan to themselves to buy a qualifying home. RRSPs are government-sponsored accounts that help Canadians save for retirement by deferring taxes. The benefit of an HBP is to allow RRSP savings to be used to help people purchase their first home.

How does the Home Buyers’ Plan Work?

First things first: you must invest in your RRSP. It’s great news if you already have the full $60,000 invested in your RRSP, but even if you don’t, there’s still good news, because there is no minimum withdrawal and you can withdraw a smaller amount. To withdraw under the HBP, funds need to be in the RRSP for at least 90 days prior to withdrawal. If you are buying the house with your spouse or common-law partner, you can take out a maximum of $60,000 per person, allowing a total withdrawal of $120,000 per couple.¹

Once you have decided on how much you want to withdraw, you need to fill out a form from the Canada Revenue Agency (CRA) called the T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP,² stating you wish to withdraw the funds. Your financial advisor can help walk you through this process. Once you take out the money, you can use the proceeds toward the purchase of a qualifying home.

You have up to 15 years to repay to your registered retirement savings plan (RRSP), pooled registered pension plan (PRPP) or specified pension plan (SPP) the amounts you withdrew from your RRSP under the Home Buyers' Plan (HBP).

Under the current rule, your repayment period starts the second year after the year when you made your first withdrawal from your RRSP under the HBP.

A temporary repayment relief was introduced in 2024 to defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year in which a first withdrawal was made. For example, if you made your first withdrawal in 2022, your first year of repayment will be 2027.

Where the repayment relief does not apply, the current rule applies. Therefore, if you made your first withdrawal before January 1, 2022, your repayment period started the second year after the year you made your first withdrawal from your RRSPs under the HBP. For example, if you made your first withdrawal in 2020, your first year of repayment was 2022.

You can repay the full amount into your RRSPs, PRPPs, or SPP at any time.

If you choose to start your repayments earlier, your repayment period will stay the same. Any repayments made before you are required to start your repayments will reduce the amount you have to repay for the first year.

If the early repayments are more than the required amount for the first year, the difference will reduce your HBP balance and the minimum required annual repayment amounts over the remaining repayment period.

Why use the HBP?

Buying a home is expensive. The HBP allows you to borrow from your own savings “interest-free” rather than paying interest to borrow from a bank. However, by withdrawing from your RRSP under the HBP, you’ll lose the potential growth on that withdrawal.

The bigger your down payment, the smaller the mortgage you’ll need. Also, using the HBP may help you bring your down payment above the 20% threshold of the total purchase price. Generally, this means you don’t have to pay for mortgage loan insurance.

Basic eligibility

Certain conditions must be met in order to be eligible to participate in the HBP, including the following:³

• You must be considered a first-time home buyer by the CRA.
• You must have a written agreement to buy or build a qualifying home (there are special rules if you have a disability or if you are helping a related person with a disability buy or build a qualifying home).⁴
• You must be a resident of Canada when you withdraw funds from your RRSPs under the HBP and up to the time a qualifying home is bought or built.
• You must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it.
• If you have previously participated in the HBP, you may be able to do so again under certain conditions.

You and your partner could also benefit from the First-Time Home Buyers’ Tax Credit (HBTC). This is offered by both the federal and provincial governments.

You may not be aware of the new Tax-Free First Home Savings Account (FHSA). This is a program that will be available in 2023 to Canadians for the first time. The FHSA lets first-time home buyers save up to $40,000 tax-free. As with RRSPs, contributions to an FHSA are tax-deductible, and as with TFSAs, earnings inside an FHSA, as well as withdrawals from an FHSA, are tax-free.⁵ You can contribute up to $40,000 over your lifetime, and up to $8,000 in any one year. Something to keep in mind is that once you open an FHSA, the account can only stay open for 15 years. (This is just a high-level overview of the FHSA; there are a lot more details that can be found on our FHSA page.)

Bottom line

Buying your first home can be both daunting and thrilling. You are starting a new chapter in your life, with added financial responsibilities. Use the information above about the Home Buyers’ Plan and consult your financial advisor to ensure you are eligible, and that the plan makes sense for your situation. Your financial advisor can also help you think about your time horizon and risk tolerance for investments set aside for the HBP.