Buying a home with the HBP, how does that work?

Buying a first home is one of life's major events. Fortunately, there are tools to help you make it happen. The HBP lets you withdraw up to $60,000 from your RRSP to help you finance the purchase or construction of your new property. And the tax credit for first-time home buyers entitles Quebec residents to claim up to $1,500 federally and up to $1,400 provincially.

Read about the eligibility requirements and withdrawal terms for the HBP. Then take full advantage of this helping hand when the time comes to buy your first home.

HBP eligibility requirements

• The HBP is there for first time home buyers. In the case of a couple looking to buy a home (or any person buying a home with you) this means that both of you will need to be first time buyers. You can still benefit from the HBP if you or your spouse were homeowners in the past, as long as you haven't been an owner for four years. In the case of a separated couple, both people can take part in the HBP program even if they are no longer considered first time buyers, under certain conditions. In this case, the RRSP must be repaid in total before any new funds can be withdrawn under the HBP.
• You will need a written agreement whether you are purchasing or building the home, before October 1 of the year following the year of withdrawal.
• The home needs to be your principal residence and you need to live in it in the year following the withdrawal of funds.
• Only amounts that have been deposited in your RRSP for 90 days are available for use under the BHP plan.

Making withdrawals from your RRSP under the HBP

There are so many things you need to think about when it's time to shop for and buy a first home! So it's a good thing that withdrawing money from your RRSP under the HBP is so simple to do. And, knowing that you need a minimum 20% down payment to avoid having to buy mortgage insurance (through CMHC or Genworth Financial), dipping into your RRSP becomes even more attractive! Once you have decided on how much you want to withdraw, you need to fill out a T1036 Home Buyers' Plan (HBP) RequestAttention, this link will open a new tab.Attention, this link will open a new tab., among other things, to Withdraw Funds from an RRSP from the Canada Revenue Agency and submit it to your RRSP issuer, your bank for instance, and they will take care of the next steps.

You can take out a maximum of $60,000 per person, allowing a total withdrawal of $120,000 per couple. In addition, if your RRSPs are managed by different institutions, you can request making a withdrawal from each separately, without exceeding your total withdrawal limit. You will also have a chance to decide if you want to withdraw all of the funds at one time or spread it out over a year. This will give you flexibility whether you want one large cash down payment up front for buying an existing property, or you need cash flow in the case of a home you are building yourself, for example.

Reimbursement of funds

Under the HBP, once you have made a withdrawal, you have up to 15 years to pay back the amount withdrawn from you RRSP in full. For individuals who made a first withdrawal between January 1, 2022, and December 31, 2025, the repayment period for your funds won't begin until 60 days after the end of the 5th year following the date of withdrawal.

For any withdrawal made after December 31, 2025, repayment must begin no later than the second year following the year of the withdrawal.

The CRA will determine your repayment schedule by dividing the total amount to be repaid by 15. For example, a total withdrawal of $15,000 spread out over 15 years will require annual reimbursements of $1000. You are always allowed to make higher one-time payments if you wish. The CRA will calculate subsequent payment amounts as a function of the number of years remaining. Note that in this case, this does not mean you can pay nothing the following year but rather spreads out the value of the other amounts over the remaining years.

In order to help you keep track and make your payments more easily, the CRA will send you an annual statement of account with details on the amounts reimbursed to date and the outstanding balance. You will also be notified of the exact amount due in the current year.

All of this information will be available to you at all times when you consult MyAccount using the MyCRA mobile app.

Declaring your reimbursements on your tax return

When the time comes to reimburse your HBP, it's important to distinguish these amounts from your regular RRSP contributions. As amounts withdrawn as part of the HBP come from past RRSP contributions, you may not contribute them a second time. All your reimbursements need to be declared separately using Schedule 7, which you need to attach to your federal tax return each year.

As the CRA will use this document to determine your statement of account and repayment schedule, you need to file a tax return every year, even if you have no income or pay no tax. 

Knowing how the HBP works will help you fully benefit from this powerful tool for financing the purchase of your first home. And the HBTC will give you an added boost. If you have any questions about your particular situation, the Canada Revenue Agency can help you get the most out of the HBP program.