Did you know the Home Buyers’ Plan (HBP) is available only to first-time home buyers and a few others?
This federal government program, established in 1992, lets a qualifying first-time home buyer use up to $25,000 from their RRSPs tax-free as a downpayment. Couples can use up to $50,000.
To qualify, the home buyer must:
not have owned a home within the past five years;
use the home as their primary residence; and
repay their RRSP within 15 years with minimum annual payments of 1/15th of the withdrawn amount starting the second year after they withdrew funds.
Can previous participants use the HBP more than once?
Until 1999, only first-time buyers could use the HBP. However, the rules changed and qualifying previous participants could again use the program.
To participate the second time, home buyers must have fully repaid the balance from their previous RRSP withdrawal by the beginning of the year in which they chose to reapply.
Disabled persons can also participate more than once if they’re buying or building a more accessible home.
Why restrict this program to first-time buyers?
Unless you have already participated in the HBP as a first-time buyer, you cannot use the HBP if you are a trade-up buyer.
This doesn’t seem fair to Dave Watt, a Real Estate Board past president, who describes trade-up buyers as a “forgotten group” when it comes to using RRSPs for downpayments.
“Buyers who are trading up to a larger home to accommodate their growing family should be able to participate in the Home Buyers’ Plan,” says Watt.
He explains that saving a downpayment for a larger home can be a huge barrier for trade-up buyers, who may have small children and plenty of bills, but have managed to put savings into their RRSP each year, or have had a job transfer to the lower mainland.
“There’s no question that being able to use RRSPs for a downpayment would provide an extra helping hand,” says Watt. “And there would be benefits. A larger downpayment means a buyer would avoid CMHC mortgage-insurance premium fees required for insuring a high-ratio mortgage” says Watt.
Watt believes that there is no downside to extending the HBP and that it’s something the federal government should consider.
“Extending the HBP would help families. The cost to the government isn’t substantial because families would be using their own funds to finance their downpayments and the RRSP savings get repaid.”
It would also have a positive effect in our communities because of the substantial spin-off benefits of home buying for our local economy.