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Buying a home: use an RRSP to maximize your down payment

by Angela Iermieri* | Financial Planner | Desjardins Group

Property prices are up and mortgage rules have tightened. Here’s how to leverage your RRSP contributions to become a homeowner sooner than you thought.

With the strategy I recommend, you can quickly build up additional funds for your down payment, hassle-free.

With a little bit of planning, you might be able to achieve your goals sooner than you think!

With the Home Buyers’ Plan (HBP), you can withdraw up to $35,000 from your RRSP to finance a down payment on your home, without paying any tax. Don’t have that much money in your RRSP yet and still have contribution room? Here’s how to access additional funds.

Step 1: February

  • Determine how much money you need for the down payment.
  • Take out an RRSP loan for the amount of your unused contribution room.
  • Put this money in an RRSP for at least 90 days.

Step 2: April

  • Add this RRSP contribution to your tax return to get a tax refund.

Step 3: May

  • Take money out of your RRSP under the HBP. The amount you borrowed (RRSP loan) will be part of the amount used and will be repaid according to the same repayment terms.
  • Close the RRSP loan. You’ll only pay interest for the 90 days you had the loan.

Step 4: June

  • Use your tax refund to make a down payment.

My advice

  • Between now and the time you take possession of your home, set up a “home” account and deposit the difference between your current monthly expenses and the expenses you’ll have to pay when you buy your home (e.g., mortgage, taxes, insurance). This will help you adjust to your new financial realities and save the money you’ll need for your upcoming move.
  • At the same time, contribute to your TFSA. You’ll have the choice of using it as:
    1. Leverage to contribute to your RRSP.
    2. A supplement to your down payment.

RRSP repayment conditions

  • The repayment period starts the second year following the year the withdrawals are made and can extend over no more than 15 years.
  • For each year of your repayment period, you have to repay 1/15 of the total amount you withdrew, with no interest or penalty. So, for a $35,000 withdrawal, you’d have to repay $2,333 a year. Be careful! This repayment isn’t a new RRSP contribution and doesn’t entitle you to a new deduction. And if you don’t repay the $2,333, it becomes taxable.

For everything you need to know about buying a home, check out our guide!

Homebuyer’s Guide – Quebec

*Financial Planner and Mutual Funds Representative for Desjardins Financial Services Firm Inc.