We know that as a first-time homebuyer, coming up with your down payment can seem a little daunting. Never fear, we have great news!
Did you know there's a government program designed to help first-time buyers just like you? The Home Buyers' Plan is a federal program that can make a huge difference when it comes to getting that down payment squared away. Let’s take a look at what this amazing resource has to offer you!
What is the Home Buyers' Plan?
The Home Buyers' Plan allows you to take funds out of your Registered Retirement Savings Plan, known as your RRSPs. This means you can borrow up to $25,000 for your downpayment tax-free. What's more, if you and your partner both have RRSPs, you are each entitled to withdraw this same amount for a total of $50,000.
Am I Eligible?
In order to participate, you or your partner cannot have owned a home in the last four years. You must also have entered a written agreement to buy or build a qualifying home where you will live for the first year as your primary residence. As for the actual loan, you must withdraw within 30 days of taking over the title. Lastly, your RRSP’s must have been in your account for at least 90 days prior to withdrawal.
How Can I Apply?
Your next step is to fill out section one of the T1036 Form. You will keep section two for your bank, who will fill it out as the process is completed. Your bank will also mail you a form confirming the amount you'd like to withdraw.
How Do I Repay My Loan?
The Home Buyers' Plan is considered a loan and must be repaid over the course of a 15 year period and you'll be required to start repaying your loan after the first two years. The Canada Revenue Agency will keep you up to speed on the status of your loan, regularly informing you as to your balance owing.
How Do I Calculate My Repayment Amount?
As mentioned above, after two years it's time to start making payments. To calculate how much you need to repay, take the overall loan amount and divide it by the number of years in which to repay - in this case, 15 years. This will give you your minimum yearly payment. For example, if both you and your spouse took out the full $50,000, your yearly repayment would be equal to $3,300 (approx. $275 a month).
What Happens if I Miss a Payment?
If you miss a payment or don’t pay the minimum, you must claim the difference as taxable income on your annual return. So if your yearly payment was $3,300 and you paid $1,300 you would have to claim $2,000 on your taxable income.
If you're eligible for The Home Buyer’s Plan, it may be well worth considering to help you on your home buying journey. Be sure to talk to your financial advisor to see if this is the right option for you.