Home Buyers' Plan
The Home Buyers' Plan (HBP) is a program that allows you to withdraw from your Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.
How it works
The Home Buyers' Plan (HBP) allows you to borrow up to $60,000 tax-free.[1] If both you and your spouse qualify, you can each borrow up to $60,000 from your RRSPs, for a total of $120,000. Rules include being a resident of Canada, being a first-time home buyer, and having a written agreement to buy or build a qualifying home, located in Canada.[1]
Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.[2]
If you buy a home together with your spouse, and both of you qualify for the program, each one can withdraw up to the maximum amount from their own RRSP. A spousal RRSP is eligible for the annuitant (owner), not the contributor.
Repayment rules
The HBP rules require that the funds must be repaid to your RRSP over 15 years. The details of when repayments must start can vary, see the CRA's website for current rules.[3]
One's HBP balance can be seen by going to CRA's "My Account".
HBP repayments are RRSP contributions designated as such on Schedule 7 of your federal tax return. It is possible to repay more than 1/15 of the original amount each year.
It does not matter if the original HBP withdrawal came from a regular RRSP or from a spousal one; the funds must be repaid to a regular RRSP.[citation needed]
If you do not repay on schedule, the missing part of the payment is added to your taxable income for the year, just like a normal RRSP withdrawal. This will increase your income taxes due for the year, and the RRSP room will be lost.
Criticisms
Critics of the HBP point out that RRSPs are supposed to help Canadians save and invest for retirement, not buy real estate:[4]
- Imagine a young couple, both 30 years of age and both with $20,000 or so in their respective RRSPs. Through the HBP, these disciplined savers are converted into spenders. They remove money that could grow to roughly $96,000 in value over 40 years (assuming a 4-per-cent average annual growth rate) and turn it into a pile of bricks and lumber. Okay, a house. (...) Through the HBP, the federal government is telling us that buying a house is important enough to scoop down-payment money out of your retirement savings. Why is Ottawa handing out bad financial advice?
Critics also point out that using your RRSP to buy real estate decreases your overall diversification, apart from hurting your portfolio returns:[5]
- Should you divert money you have saved in your RRSP to your mortgage? In general: No. You want to have other assets besides your home, and the rate of return on investing in your mortgage is probably less than what you could have earned in your RRSP. Diverting your RRSP savings to your mortgage would reduce your overall diversification even further, making a bad thing worse.
Finally, critics have argued that the
- ...HBP can entice buyers to take on more debt than they can afford. If they are unable to make a 20% down payment without having to resort to the HBP, how will they manage a mortgage payment every month and repayments to their RRSP every year?[6]
An early report on the HBP explained that "Even if the amounts withdrawn are repaid as scheduled, there is a loss of compound, tax-free interest that would otherwise have been earned by the RRSP savings. Moreover, failure to meet the repayment schedule results in even greater losses. A missed or inadequate payment not only incurs an immediate tax liability, but is also permanently lost as a future source of retirement income."[7]
Alternatives
The First Home Savings Account (FHSA) is a registered plan that gives prospective first-time home buyers the ability to save to their first home on a tax-free basis. It was introduced in 2023. The FHSA has an $8,000 annual contribution limit in addition to a $40,000 lifetime contribution limit. Like RRSPs, contributions to an FHSA are tax deductible. Like Tax-Free Savings Accounts (TFSAs), income and gains inside an FHSA as well as withdrawals will be tax-free.
Compared with the HBP, one major difference with the FHSA is that you don't have to repay your withdrawn funds. The original intent of the FHSA was to save for a down payment, and the withdrawal is typically used for that. Whereas with a RRSP, the intent is normally to save for retirement, and the HBP is in effect a loan from the RRSP, which must be repaid.
Note that it is possible to use both programs for the same home purchase.[8]
If selecting which to use (FHSA or HBP), the timing of the home purchase is a major factor: for short term purchases, if extra cash is not available, the HBP may be the only option. Whereas people with more time before the home purchase (say 5+ years) can use the FHSA over several years.[9]
History
The Home Buyers' Plan was introduced in 1992, with a withdrawal limit of $20k.[7] The default rate (percentage of participants who failed to completely repay the amount due for a certain year) was about a third in the mid-1990.[7]
The limit was increased to $25k in 2009, and by 2011, the default rate was 47%.[10]
The limit was then increased to $35k in March 2019,[11] and $60k in April 2024.[12]
See also
References
- ^ a b Canada Revenue Agency, How to participate in the Home Buyers' Plan, viewed February 16, 2025.
- ^ Canada Revenue Agency, How to make withdrawals from your RRSPs under the Home Buyers' Plan, viewed February 16, 2025.
- ^ Canada Revenue Agency, How to repay the amounts withdrawn from your RRSPs under the Home Buyers' Plan, viewed February 16, 2025.
- ^ R. Carrick, Why the Home Buyers’ Plan should be wound down, The Globe and Mail, February 4, 2013, viewed February 1, 2015
- ^ Efficient Market Canada, Your RRSP and your Mortgage: Is it a good idea?, viewed March 13, 2021.
- ^ Morningstar, Buyers beware the Home Buyers' Plan, April 20, 2010, viewed February 16, 2025.
- ^ a b c Frenken H (1998) The RRSP Home Buyers’ Plan, Statistics Canada - Catalogue no. 75-001-XPE, viewed February 16, 2025.
- ^ The Home Buyers' Plan
- ^ Think Accounting and Consulting Professional Corporation, FHSA vs RRSP Home Buyers’ Plan: A Detailed Comparison, December 10, 2024, viewed February 16, 2025.
- ^ Disappointing New Stats on the RRSP Home Buyers Plan, Canadian Mortgage Trends, February 5, 2013, viewed Feruary 16, 2025.
- ^ Budget 2019 Modernizing the Home Buyers' Plan Viewed April 28, 2019
- ^ Federal Budget 2024 - Chapter 1: More Affordable Homes, viewed February 16, 2025.