A 20% down payment on a million-dollar home seems like a lot, right? Not many of us have $200,000 in our pockets ready to hand over. However, there are many ways to save up for a down payment of that amount, including contributing regularly to a tax-free savings account (TFSA), looking into the equity of your current home if you own one and want to move up into a larger home, consolidating your debt to free up cash flow, and adding to that good ol’ piggy bank collecting dust on your dresser beginning when you or your kids are quite young. Another great way to save for your down payment on your home is by leveraging your Registered Retirement Savings Plan (RRSP). But, how does one go about using an RRSP to assist with their downpayment? In this blog, we shall dive deep into that question and other common questions that my clients ask me regularly.

Why should I use my RRSPs for a down payment on a home?

By using your RRSPs for a down payment on a home, you can withdraw from the plan without paying any tax or penalty so long as you pay back what you borrowed within the allotted time frame, unlike lines of credit or other loans. Because it’s your own money, you have more flexibility in how you use it and decide when to take it out of your RRSPs or pay it back. In addition, you may also qualify for the Home Buyers’ Plan.

What is the Home Buyer’s Plan (HBP)?

The Home Buyers’ Plan (HBP) is a government program in Canada that allows first-time homebuyers to withdraw up to $35,000 tax-free from their RRSPs to use towards the purchase of a qualifying home. The HBP was created to provide a way for first-time homebuyers to access funds for a down payment, without having to pay taxes on the withdrawals.

To be eligible for the HBP, you must be a first-time homebuyer and meet certain residency requirements. You must also enter into a written agreement to buy or build a qualifying home, and the home must be occupied by you as a principal residence within one year of purchase or completion of construction.

It’s important to note that the HBP is a loan, and you must repay the withdrawn amount to your RRSP over 15 years, starting the second year after the withdrawal. If you don’t make the required repayments, the missed amount will be included in your taxable income.

The purpose behind the HBP is to help people get into their first home faster while lowering their monthly mortgage payments to create more affordable housing options for Canadians.

What are the pros and cons of using my RRSPs for a down payment on my home?

Well, let’s put it this way. Writing a BIG check for the deposit is daunting but, wouldn’t you rather save yourself thousands of dollars in interest payments? To further explore the pros and cons of using your RRSP towards your downpayment this is a quick list I have put together for you to ponder.

PROS of using your RRSPs as a down payment for your mortgage loan

• You can withdraw money without interest.
• Flexibility as to when you can take the money out.
• May be able to qualify for the Home Buyers’ Plan (HBP).
• Lowers your monthly mortgage rates
• Allows you to become a homeowner faster.
• Your RRSP is a tax-free account, so when you withdraw that money to use for your down payment, you won’t pay tax on the amount you draw.
• If you have a high marginal tax rate, you will benefit from tax savings by paying down debt faster.

CONS of using your RRSPs as a down payment for your mortgage loan

• Reduced retirement savings: Using RRSPs for a downpayment means that you’re depleting your retirement savings, potentially reducing your future financial security.
• Repayment requirement: If you use funds from your RRSP for a downpayment, you are required to repay the amount to your RRSP within 15 years, or face penalties.
• Opportunity cost: By withdrawing funds from your RRSP, you lose out on the potential growth and compounding interest of those funds over time.

Is using my RRSPs for my down payment a good option for me specifically? And, if so, how do I get started?

It’s important to keep in mind that using RRSPs for a down payment means that you’re depleting your retirement savings, potentially reducing your future financial security. So, before deciding to use your RRSPs for a down payment on a home, it’s advisable to carefully weigh the pros and cons and to seek advice from a financial advisor and an experienced mortgage broker, like myself, Darren Robinson. I can help you review your finances and your options to ensure that you make the most of your financial resources as you work towards achieving your homeownership goals. To get started give me a call at 705-315-0516 or sign up for a free consultation on my website and we will get to work.