Your RRSP Can Help You Buy a Home Now

The biggest hurdle for many first-time home buyers is putting together the down payment for a house. But if you or your spouse have an RRSP, you may be able to start enjoying all the advantages of home ownership sooner than you think. The RRSP Home Buyers Plan was started in 1992 as a federal tax incentive to assist first-time home buyers in overcoming the initial difficulties of getting into the real estate market. Since the government started the Home Buyers program, more than 400,000 Canadians have used their RRSP funds for down payments; about 65,000 were expected to have taken advantage of the plan in 1996. With mortgage rates near their lowest levels in 30 years, now is an ideal time to buy. Using tax-free RRSP funds for a down payment makes getting into a home even easier. How does it work? The minimum down payment for first-time home buyers is five percent of the sale price of the house. You'll need an additional three per cent or so of the sale price to take care of some initial payments such as taxes, but up to 95 percent of the sale price can be financed for eligible buyers by an insured mortgage. That minimum five per cent means you don't need a great deal of money in RRSP savings to meet the down payment requirements. You may withdraw up to $20,000 of tax-deferred savings from one or more RRSP's to make a down payment. In fact, if your spouse also has RRSP’s, he or she may also withdraw up to $20,000 under this RRSP Home Buyers Plan and the total of $40,000 can be used as a down payment to buy or build a home. (The property bought or built under this plan must be your principal residence, not a second home or cottage.) According to CMHC figures, the average withdrawals when the plan started were just under $10,000. That average has declined to about $8,000 this year. Your tax-free RRSP withdrawal must be repaid within 15 years on a schedule of at least 1/15th per year. Any shortfall in any year will be included in your income and taxed at the normal rate. The repayments begin the second year following the year in which the withdrawal was made. You do not receive another tax break when you make repayments to your RRSP. A REALTOR can supply you with all the details about the RRSP Home Buyers Plan - and help you find that first house. With good deals and low carrying costs available, now is the time to take the plunge - with help from your RRSP savings - and make your dream of owning a home come true. REALTOR is a registered trademark of the Canadian Real Estate Association and identifies a real estate practitioner who is a member of the Association.