The Home Buyers Plan, or the HBP, is a government incentive offered to first time Canadian home buyers. This plan allows you to withdraw a maximum amount of $25,000 from your Registered Retirement Savings Plans, or RRSPs, without having to pay additional taxes. If you have a spouse, both of you can take $25,000 out of your savings.
Eligibility Criteria
You must fulfill the following points to be considered for the Home Buyers Plan.
- You must have Canadian nationality.
- You must have a Retired Savings Plan under your name.
- You must produce a written agreement which clearly states that you want to build or purchase a home.
- If you have previously availed the HBP, then no balance of that amount should be due.
- You must be a first time home buyer or you should not have lived in a home under your name for the last four years.
- You must buy or purchase a home within one year form the withdrawal date or before 1st October of the following year.
- The withdrawal must be made within 30 days when you acquire ownership of the home.
These conditions may not apply if you have a disability.
Repayment Terms
You must pay back the loaned amount within 15 years, which will be counted after two years from your withdrawal rate. Moreover, you must pay at least a certain minimum amount every year which is usually equal to 15% of the total amount taken. If you do not, you will have to pay taxes on this income for that year. However, there are no restrictions on the maximum amount to be paid in a year.
Pros
- The HBP is characterized by a reliable and safe rate of return or ROR.
- In a way, you are paying an interest to yourself, and not the bank. This is a good point if you are among those people who are not particularly fond of banks.
- No additional tax charges have to be paid on these funds.
Cons
- There are many extra charges involved in availing the HBP, which can accumulate to a value above $1,000.
- You must buy an insurance policy from CMHC, even if you pay a large down payment. This is not required for other mortgages if you pay a down payment which is equal to or greater than 20% of the total home value.
- The income ROR is fixed if you consume the whole amount of your RRSP.