Buying a home with an RRSP or a TFSA

Buying a home is an important decision.

Before moving forward, you need to ask yourself a few questions. Do you have the financial means to make a major purchase such as this? Do you have the discipline to make the required repayments?

• Determine your ability to pay over the short and medium terms, the financial obligations related with the purchase of a property. Since the mortgage repayment will be a big part of these obligations, it's important to have a clear idea of your financial situation.
• Draw up an accurate account of your financial inflows and outflows over the last 12 months. Doing so will allow you to determine the amount that you can allocate to the repayment of your mortgage each month.
• You can also hire a financial advisor to help you accurately determine your borrowing capacity.
• You may also want to meet with a real estate agent, who can guide you through the purchase process.

Prepare for the unexpected.

When you buy a home, it's best to have a financial cushion in case difficult times arise. No one is immune from possible loss of income, an unexpected increase in expenses or rising interest rates. 

After determining your financial means, meet with your lender or mortgage broker to review your options. They'll let you know what you need to do to get a mortgage pre-approval once you've found the property you want to buy.

What's a mortgage pre-approval?

It's a way to knowing ahead of time the amount your financial institution is willing to lend you to purchase a home. It also lets you know how much you can pay, what your interest rate will be for the loan term and how much your mortgage payments will be.

If possible, choose weekly or bi-weekly, rather than monthly, payments. By doing so, you'll pay off your mortgage faster and pay less interest!

What is the HBP?

The Home Buyers' Plan (HBP) allows you to use the money you've saved in your RRSP to purchase a qualifying home without having to pay tax. It's like an interest-free loan you give to yourself.

Does the HBP have a maximum threshold?

Under the HBP, each spouse can withdraw up to $35,000 from their RRSP without paying tax. Eligible amounts must have been contributed to your RRSP no less than 90 days before the withdrawal date.

Who is eligible for the HBP?

In order to be eligible for the HBP, you must be considered a first-time home buyer. That being said, you can be considered a first-time buyer more than once in your lifetime.

You are considered as a first-time home buyer if you haven't lived in a home owned either by you, your current spouse, or your common-law partner in the four years leading up to the withdrawal.

You must also meet the following criteria:

• You must have a written agreement to buy or build a qualifying home.
• You must be a resident of Canada.
• You must intend to occupy the qualifying home as your principal place of residence within one year of buying or building it.

For more information about all eligibility requirements, visit the Canada Revenue Agency.

How are HBP repayments made?

You will need to put the money back into an RRSP over a maximum period of 15 years, repaying 1/15th of the total amount you withdrew per year. Your first repayment is due the second year following the year you first withdrew funds from your RRSP. So, if you take advantage of the HBP in 2023, your first year of repayment will be 2025.