The HBP can be the key for new homeowners
COLLABORATION - Thinking of buying your first home? Before choosing your home and protecting your investment, you must first go through the initial down payment phase, which can sometimes prove to be a challenge. You should consider the Home Buyers’ Plan (HBP)...who knows, it could be the key that unlocks the door to your first home!
To find out more about the HBP, here is some useful information taken from our La Capitale assurances générales blog!
The HBP at a glance
The HBP, which was introduced in 1992, is a tool that allows you to make tax-free withdrawals from your RRSPs to make a down payment on your first home.1 You can add several thousand dollars on your initial down payment amount by dipping into your own savings: easy peasey! It’s no wonder that millions of Canadians have turned to the HBP to finance their first home.
Sophie has $20,0002 to invest toward her first home. She decides to invest this sum in her RRSP: 90 days later, she withdraws it, tax-free. Better still, she gets an $8,000 tax refund because her tax rate is 40%. Sophie’s down payment increases from $20,000 to $28,000.
With this amount, Sophie can pay for her mortgage credit insurance – required by the Canada Mortgage and Housing Corporation (CMHC) – if her financial institution requires this type of coverage in her situation.
- The amount withdrawn for the HBP must have been invested in your RRSP for at least 90 days.
- You then have 15 years to pay the amount of the withdrawal back in your RRSP.
- You will have to start reimbursing during the second calendar year following the withdrawal or in the first 60 days of the following year, at the latest.
- Buying the property as a couple? Each spouse can use up to $35,000 from their own RRSP, for a maximum of $70,000 per couple in a legal or civil union.
The HBP is still an option after a separation
In the event of divorce or if you stop living with your common-law spouse for at least 90 days, you can make another withdrawal. Here are the conditions:
- That the amounts withdrawn for your first HBP are reimbursed
- That you live apart from your spouse or common-law partner at the time of the withdrawal and that you started living separately during the year of the withdrawal, or at any time during the previous four years.
- You must have a signed agreement that confirms the purchase or construction of an eligible residence. You must also move into your home less than a year after the transaction or construction.
Every dollar counts, sure, but you still want to contribute to your RRSP so you can take advantage of the HBP. Financial institutions offer loans that will help you achieve your home ownership objective. Tread carefully, however, with this option. If money is tight, it’s probably not the right time to purchase a home.
Ideally, you should talk about your plans with a financial security advisor. After performing a thorough assessment of your situation, he or she will be able to help you with your HBP and, of course, your homeownership project.
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