The Home Buyers’ Plan in Canada

What is the Home Buyers’ Plan (HBP)?

The Home Buyers' Plan (HBP) is a government initiative that enables eligible Canadians to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to purchase or build a qualifying home for themselves or for a specified disabled person. Currently, the maximum withdrawal limit under the HBP is $60,000.

Withdrawals made through the HBP are tax-free at the time of withdrawal, meaning they do not immediately affect your taxable income. However, it is important to note that the amount withdrawn must be repaid to your RRSP within 15 years.

If you fail to make a repayment, that amount will be considered taxable income for the year in which the repayment was missed.

You can make withdrawals from your RRSP under the HBP and make a qualifying withdrawal from your First Home Savings Account (FHSA) for the same qualifying home, provided that you meet all the necessary conditions at the time of each withdrawal.

Who is eligible for the Home Buyers' Plan?

To take advantage of the HBP, you need to meet several eligibility requirements:

• First-time homebuyer: To be considered a first-time homebuyer, you generally must not have owned a home in the past four years. This applies to you and your spouse or common-law partner.
• RRSP contributions: To withdraw funds from your RRSP, you must have contributed at least 90 days prior. Last-minute contributions won’t help if you plan to buy a home soon.
• New home purchase: The funds must be used to buy or build a home that will be your primary residence. The home must also be purchased within a year of the withdrawal.
• Intention to live in the home: The home you buy must be your primary residence. The withdrawal may be subject to taxes if you don’t reside in it within a year.
• Repayment: You must begin repaying the amount withdrawn from your RRSP in the second year after the withdrawal, typically in equal annual instalments over 15 years.

Does insurance play a role in the HBP?

Here’s why home insurance is important in the context of the Home Buyers' Plan:

• Some mortgage lenders require it: If you're financing your home with a mortgage, your lender will likely require home insurance to protect their investment against significant damage.
• Property coverage for first-time home buyers: First-time homebuyers may not fully grasp the necessary coverage. A standard policy usually covers structural damage, personal property, liability, and additional living expenses if the home is damaged. However, you may need additional coverage for risks specific to your area, such as flooding or earthquakes.
• Financial stability: Proper insurance is vital to protect your investment. Without sufficient coverage, damage to your home could lead to financial difficulties, making it harder to repay debts, including RRSP withdrawals under the HBP.

Home Buyers’ Plan FAQs

What is the limit on the Home Buyers’ Plan?

The HBP allows you to withdraw up to $60,000 from your RRSP to buy or build a home, including for a family member with a disability. As long as you repay the funds within the required timeframe, these withdrawals are tax-free.

What happens if you don't pay back HBP?

If you missed a payment, it will be taxed at your marginal income tax rate, just as if you had withdrawn that amount from your RRSP. Additionally, the required repayments for the Home Buyers' Plan (HBP) will be lowered by the amount that is included in your income.

How do I repay the amounts withdrawn from my RRSPs under the Home Buyers' Plan?

You have 15 years to repay amounts withdrawn from your Registered Retirement Savings Plan (RRSP) under the Home Buyers' Plan (HBP). Your repayment period starts in the second year after your first withdrawal.

Connect with the right insurance and financial experts when you are saving for a home

If you’re thinking about purchasing your first home, consult financial advisors and insurance brokers to help you make informed choices regarding your RRSP, home financing, and coverage.