How to use your RRSP to buy a house

The Home Buyers’ Plan (HBP) lets you use your RRSP, tax-free, to buy your first house. But how does it work? And what are the conditions? Find out what it's all about and if it will work for you.

You must be a first-time home buyer. That means in the 4-year period* before the home purchase, you didn’t:

• live in a home you owned, or
• live in a home your current spouse or common-law partner owned.

To be tax deductible, your RRSP contributions must be in your account for at least 90 days before you withdraw them for the HBP.

You must have an agreement in place to buy or build your new home before October 1st of the year after you made the withdrawal.

You intend to occupy the qualifying home as your principal place of residence. You must live in it within one year after buying or building it.

You must be a resident of Canada when you withdraw funds from your RRSP(s) under the HBP, and up to the time you buy or build a qualifying home.

*The 4-year period means the four years before a home purchase. The period begins on January 1 of the fourth year before you withdraw funds from your RRSP. The period ends 31 days before the date you withdraw the funds. For example, consider if you withdrew the funds on July 31, 2022. Then the 4-year period is from January 1, 2018, to June 30, 2022.

HBP advantages

• You can save money in an RRSP without giving up on the home ownership dream.
• Maximum withdrawal: $35,000 per person. A married or common-law couple can withdraw up to $70,000. Budget 2024 proposes to increase the withdrawal limit to $60,000 per person for withdrawals, after April 16, 2024.
• To avoid an income inclusion, you have to pay a minimum of 1/15 of the withdrawal back into your RRSP each year. Budget 2024 proposes temporary repayment relief to defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year in which a first withdrawal was made. For example, if you made your first withdrawal in 2022, your first year of repayment will be 2027.
• The HBP can be combined with the First Home Savings Account (FHSA) on the same home purchase.

How can the HBP help with your down payment?

Frank and Laura want to buy a $450,000 condo in the summer of 2023.

• They each have $15,000 in their RRSPs.
• They need to come up with a minimum down payment of 5%, which is $22,500.
• They decide to use the HBP for the down payment. They each withdraw $11,250 from their RRSPs.
• They have until September 30, 2024, to close the condominium purchase.
• Each of them will need to repay at least $750 to their RRSPs every year starting in 2025.

[Down payments under 20% need a Canada Mortgage and Housing Corporation (CMHC) loan to insure them.]

What happens if you don’t close on the home you withdrew funds to buy?

Sophia made an HBP withdrawal in 2022 to buy a condo, but the deal fell through.

Sophia decided not to buy a different residence before October 1, 2023. That means she can cancel her HBP participation and put the funds back into her RRSP, without penalty. To do so, Sophia must put the money back by December 31 of the year after the year she received the funds. In her case, that’s December 31, 2023.

What happens if you can’t buy or build a house in time?

Michael made an HBP withdrawal in 2022, but was unable to buy or build a house before October 1, 2023. He can still meet the deadline if either of the following applies:

• He has a written agreement in effect on October 1, 2023, to buy a home before October 1, 2024, of the following year.
• He paid an amount after the date of the first withdrawal and before October 1, 2023, for materials for the home being built or towards its construction, that was at least equal to the total of all withdrawals under the HBP.

Does the HBP work for everyone who buys their first house?

Synden and Gianni plan to buy a $500,000 home. They already have $30,000 towards their down payment.

• They are reluctant to withdraw $35,000 each from their RRSP and use it towards the 20% down payment and avoid having a CMHC-insured loan.
• Withdrawing funds from their RRSP could reduce their RRSP income down the road.
• For them, the HBP may not be the best solution.

Like other financial tools, use the HBP strategically to ensure it helps you achieve your financial goals.