Many buyers are frustrated with the home prices in the major urban areas in Canada and may feel that they are constantly chasing the market. The moment a first time home buyer has enough savings for a down payment that would give them an affordable monthly mortgage payment, the home prices have moved up and more down payment is now required for that affordable monthly payment.

It is important to not forget that Canadian first time home buyers are eligible for the Home Buyers’ Plan (HBP).

HBP allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a home that you will occupy. For a couple, that is potentially up to $50,000 towards the down payment. With the instability of the financial markets, investing your RRSPs into your home rather than volatile funds can be a good use of your hard earned savings. Also, contributing into RRSPs yields you a tax rebate. So, you may choose to invest into your RRSPs and then use those funds for your down payment via HBP, plus get a tax rebate. Note that the RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year. Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. Even if one of the home buyers has already been a homeowner before, the other spouse or common-law partner may still be considered a first time homebuyer.

With the HBP, you either use it or lose it, as you are usually considered a first time home buyer only once. When you move up the property ladder and sell your first home, the equity, which would include the funds from HBP, can be transferred over to your new home, so your investment lives on. Also, important note to real estate investors, using the HBP on your own primary residence will allow you to keep more of your savings and use towards downpayment for investment property. HBP is not allowed on investment property.

Information on the Home Buyers’ Plan can be found on the Canada Revenue Agency site:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html