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Home Buyers’ Plan (HBP) :
purchase a property with your RRSPs

What is the Home Buyer’s Plan (HBP)?

The Home Buyers’ Plan, also known as the HBP, is a program that can be very useful and advantageous in helping you make a down payment on the purchase or construction of a house, condo, cottage, etc. It allows you to withdraw up to $35,000 from your RRSP (retirement savings plan) without paying taxes. “Rapping” is a bit like lending money to yourself. However, you will have to put the amount borrowed back into your RRSP gradually. Generally, you are required to repay 1/15 of your loan each year. For example, if you “scratch” $35,000, you will have to pay back about $2,334 of your loan over 15 years.

Who is eligible for the HBP?

There are certain eligibility criteria set by the government. The HBP is open to Canadian households who have not yet purchased a first home and who meet these conditions. For example,

  • First, you must be a resident of Canada when you decide to withdraw funds from your various RRSPs under the HBP. This requirement applies until the purchase or construction of the qualifying home is completed.
  • Second, you must be considered a first-time home buyer.
  • Then you must have a written agreement to purchase or build a qualifying home, either for yourself or for a related person with a disability.
  • You must also intend to occupy the qualifying home as your principal place of residence immediately within one year of its acquisition. If the acquisition is for a related person with a disability, there must be a clear intention to occupy the qualifying home as the principal place of residence of that person with a disability.
  • erIn any event, if you have already made a withdrawal, you may do so again as long as your HBP repayable balance as of January 1 of the year of withdrawal is zero. Of course, this is subject to meeting the other HBP eligibility criteria.

erBy qualifying home, the Canada Revenue Agency means any home purchased or constructed on or before October 1 of the year following the year of your withdrawal(s). This home may be acquired by you alone or with the participation of one or more other persons. The CRA considers that you have built a qualifying home from the day it becomes habitable. Finally, it should be noted that you may acquire a replacement property different from the one shown on the written agreement, provided you inform the CRA.

In addition, you must have an RRSP before you can withdraw funds for the HBP. The maximum amount you can withdraw from your RRSPs under the HBP cannot exceed $35,000. If you purchase the qualifying home with your spouse or common-law partner, each of you can withdraw $35,000 for a total of $70,000.

How to benefit from the HBP ?

You will need to study the property you wish to acquire either by purchase or by self-build. Here, the total cost will be a key element. Once you have verified that you are eligible to benefit from the HBP, you can fill out form T1036 – Request for Withdrawal of Funds from an RRSP from the CRA. All you have to do is submit the completed form to your RRSP issuer. The issuer can be your financial organization or your banking institution and will take care of the rest of the procedure.

If your form must mention the amount to be withdrawn, it should be remembered once again that this amount cannot exceed $35,000 or $70,000 for a couple. You may request to make one or more separate withdrawals for reasons that are discretionary.

Advantages and disadvantages of the Home Buyers’ Plan (HBP)?

Here are some of the benefits of HBP:

  • Possibility of borrowing from your RRSP without paying tax penalties or interest
  • With an available down payment, the cost of mortgage insurance can be lowered and even brought to zero if the HBP exceeds 20% of the acquisition cost of the property.
  • You have two years of respite before you start making repayments
  • Ease of homeownership: With the HBP, households have access to an immediate down payment for homeownership. This makes it easier for them to become homeowners.

The disadvantages are mainly related to :

  • Rental Restrictions: If you own a home purchased under the Home Buyers’ Plan, you are subject to rental restrictions. For example, you or a related person with a disability must move into the property within one year of purchase.
  • It is rare that the HBP alone is sufficient to acquire the property. When combined with a loan, it can be difficult to meet the repayment requirements, especially since any delay could be costly. 
  • Financial risks: there is a risk of ending up with a property that is worth less than the owner paid for it if real estate prices fall. This can have serious repercussions and result in significant financial losses.

An example of an acquisition project carried out with the RAP

Josephine and Albert have been a couple for almost six years. Although their income is modest, they want to become homeowners. They did a little research and decided to buy a magnificent $250,000 home. With their accumulated HBP of $70,000, they were able to make the minimum 20% down payment required to avoid mortgage insurance. In addition, they used a bank loan and what they had already saved to amortize the total purchase cost. In the end, they will have to pay, approximately, $4,670 per year for 15 years to pay off the amount withdrawn.  

Tax free… provided you repay your loan!

Xperto will strongly advise you to follow the repayment schedule of your HBP because you will have to pay tax on all outstanding amounts, which will now be considered as withdrawn from your RRSPs.

Xperto advises you on the HBP

Working in Laval and on the North Shore, you can count on Victor Hugo Pereira and his team to expertly guide you through the entire HBP process. During your free meeting (find out why our services are free here), your mortgage broker will first determine if you qualify for the Home Buyers’ Plan; as a general rule, you must be a first-time buyer but there are always exceptions.

Your broker will also provide you with all the information you need to make the HBP process work. Based on your unique situation, he or she will answer any questions that you might have, such as:

  • Is it better for me to repay my HBP very quickly or make RRSP contributions?
  • Is it better to take the amount of my down payment directly into my personal savings or to put the amount allocated to my down payment in my RRSPs first and then to “raper” it?