The First-Time Home Buyers’ Plan is a powerful financial tool for new homeowners. This government program allows purchasers of their first home to withdraw up to $25,000 tax-free from their RRSP to put towards a down payment. While it’s an excellent program for young investors, it might not be right for everyone. Here are a few scenarios where you might think twice about using the First-Time Home Buyers’ Plan.
If you’re unable to pay back the funds annually over 15 years
Each year, borrowers must deposit back one-fifteenth of the money withdrawn to their RRSP ($1666.67 for the maximum $25,000 withdrawal) otherwise the portion unpaid will count as part of your regular, taxable income. Borrowers hesitant of their ability to meet HBP payments should look elsewhere to bolster their down payment sums such as other savings, TFSAs or family members.
If you’ve contributed to your RRSP within 90 days of your closing date
HBP rules require a 90-day waiting period between making RRSP contributions and withdrawing them for a down payment. Unless you already have over $25,000 in the account, first-time homebuyers that deposit a significant lump sum into their RRSP won’t be able to access it until after three months, otherwise they will be charged withholding tax equivalent to their income tax rates.
If your RRSP’s market value is significantly lower than its book value
If the markets are down, your RRSP could be worth less than the amount you initially invested. While the funds are likely to recover and continue growing if left in place, withdrawal of those funds through the First-Time Home Buyers’ Plan eliminate that opportunity.
If growing your RRSP is a priority
By withdrawing funds from your RRSP, you’re eliminating the tax-sheltered interest-earning power of your retirement savings. Leaving your RRSP untouched could be worth your while as the interest grows over a longer period of time.
This information should be relied on as legal, financial advice or a definitive statement of the law in any jurisdiction. For such advise, please consult your own financial advisor or legal counsel.