For the past 22 years, the Home Buyers’ Plan has helped more than 2.5 million Canadians borrow money from their RRSPs to help make the dream of home ownership a reality. However, the $25,000 maximum that can be withdrawn per person doesn’t give prospective homeowners a lot to work with.
The reasoning behind this plan is fairly straightforward. First-time homebuyers (or anyone who hasn’t owned his or her primary residence in the past five years), are permitted to take up to $25,000 from their retirement savings without penalty as long as it is paid back within 15 years, which starts two years after the withdrawal occurs.
If you are buying with your spouse or common-law partner, it is possible to withdraw $50,000 ($25,000 per person). This, in turn, makes it easier to attain the 20-per-cent down payment minimum that is required to avoid paying mortgage insurance.
But there are some specific rules to follow before the money can be taken out. The money must be in your RRSP for a minimum of 90 days before withdrawal. This prevents people from making sudden $25,000 contributions to their retirement savings, only to withdraw it a few weeks later.
However, it still allows buyers the opportunity to enjoy a decent tax benefit afterwards, which can eventually be reinvested
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