What is the Home Buyers' Plan (HBP)

The Home Buyers’ Plan (HBP) is a program that allows all eligible first-time homebuyers to withdraw up to $35,000 tax-free ($70,000 for a couple) from a Registered Retirement Savings Plan (RRSP). The withdrawn funds must be used as a down payment on either the purchase of a resale home or new home construction.

Good credit is important for your financial health, and Borrowell can help you take a turn for the better. Sign up for Borrowell to get your credit score and credit report for free!

Sign up

How the Home Buyers' Plan Works

Understanding the Home Buyer’s Plan starts with understanding your RRSP. When you contribute to your RRSP, you get a tax deduction. The contributed funds benefit from tax-deferred growth, since any contribution to your RRSP can grow without triggering taxation.

More from MoneyWise

That said, if you remove funds from the account before retirement, the withdrawal is added to your taxable income, plus you pay withholding fees. However, if you withdraw funds through the HBP, you pay no tax and you have 15 years to repay the withdrawn sum.

Why the HBP is such a powerful tool

It can be difficult for savers and aspiring homeowners to decide between competing financial goals. For example, should you save for retirement? Put away money for a home purchase? Or focus on reducing the taxes you pay? To make it easier, answer the following three questions:

  • Are you at least three months or more away from finalizing the purchase of a home?
  • Would you benefit from a tax rebate or reducing the overall taxes paid in the current calendar year?
  • Is saving for retirement a critical financial goal?

If you answered "yes" to any of the above questions, your best bet is to contribute to your RRSP. By prioritizing your RRSP contribution, you save on taxes and build your nest egg. These funds can then be withdrawn interest-free and used as a down payment on a home when you're ready.

Get a $50 bonus when you open and fund your first Wealthsimple Invest account* (min. $500 initial deposit). Trade and Cash accounts are not eligible. Sign up now to take advantage of this special offer.

Get started

Who is eligible for the HBP?

To be eligible for the HBP, you must first meet the federal government's definition of a first-time buyer. The criteria are as follows:

  • You haven't owned a home in the past four years or lived in a property owned by your common-law partner or spouse over the last four years;
  • The home you intend to purchase or construct must be your primary residence (and you must move in within one year of purchase);
  • You are a Canadian resident.

Remember that you cannot access your RRSP funds if you still have a balance owing on a previous HBP withdrawal.

When to use the first-time Home Buyers' Plan

You should consider using the HBP if:

  • The withdrawn funds will help boost your down payment and, ultimately, make it possible to purchase a property;
  • The funds withdrawn were in your RRSP account for 90 days or longer;
  • You expect to earn more — and contribute more to your RRSP — in future years;
  • You have a plan to repay the funds within the required 15-year term (to avoid fees or penalties).

There are two other critical moments when using the first-time Home Buyers' Plan makes sense:

  • You are recently separated or divorced and looking for an opportunity to get back into the property market;
  • Four or more years have passed since you first owned any property, and you'd like to get back into the property market.

What to do at tax time

If you end up using the Home Buyers' Plan, expect to receive a T4RSP form from your financial institution. Use this form when filing your taxes. Each year, you report on the progress of your repayments to your RRSP using Schedule 7.

Keep the HBP in mind

Given the astronomical cost of housing in Canada, knowing when and how to use RRSP contributions as part of your home buying strategy can be a powerful tool for aspiring homeowners.

You're 5 minutes away from the best mortgage

Searching for your perfect mortgage shouldn’t be hard.

Homewise is an online brokerage that will negotiate on your behalf with more than 30 big banks and other lenders, completely free, and it only takes five minutes to apply.

If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.

About the Author

Romana King

Romana King

MoneyWise.ca contributor

Romana King is the woman behind RKHomeowner and currently holds the position of Director of Content at Zolo. She writes for various publications and her first book, *House Poor No More: 9 Steps That Grow the Value of Your Home and Net Worth,* is an Amazon bestseller.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.