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Using an RRSP for a Down Payment – Dipping into RRSP Accounts

If you have been interested in buying a home for some time but have not managed yet to accumulate enough money for a down payment in your current savings account, you may want to consider the possibility of using an RRSP for a down payment. While this certainly has its share of pros and cons, for many people, this is a logical solution. Some will use their RRSP account for the funds to take a gap year off to travel, and others will use it to purchase an automobile, so why not consider using this money, which is entirely yours, as the means for a down payment for a home?

The government in fact encourages potential homeowners to use an RRSP for a down payment, with the Home Buyer’s Plan. This provides a stimulus that allows Canadians at all walks of life to tap into their RRSP funds to draw out the adequate amount of money and lock in low interest rates, in order to ramp up real estate sales throughout the country. There is no penalty for withdrawal of these funds, nor is there any extra tax that can be charged for this withdrawal. This means that the use of the RRSP funds is one smooth transaction, without any tax penalties.

There is a limit on the amount of money that can be withdrawn, which currently stands at 20,000 dollars. For many homebuyers in Canada, this will be a significant amount to put down as part of their down payment on a new home. However, there are a few stipulations. You must be considered a first-time home buyer, meaning that this money is to be used only for the first home. This is because it’s considered that if you already own a home, you can use the money from the sale of that home as a down payment for the second. This act is meant to be used by people who otherwise wouldn’t be able to dig up the funds for a down payment.

This limit can be doubled if the homebuyers are a couple. Each individual is allowed to take out their separate 20,000 dollars, leading to a grand total of 40,000 dollars. For newlyweds, this is a great bonus from the government. Many find that using an RRSP for a down payment is the best idea possible when having just already gone through the large expense of throwing a wedding.

Repayment options vary for those who are using an RRSP for a down payment. Generally speaking, you must start the repayment process two years after the withdrawal occurs, and begin contributing again to your retirement fund. The amount of yearly payment will vary depending on your income and circumstances, but generally speaking this two year time frame stands for all borrowers. There are exceptions for those with disabilities, who may have access to additional withdrawal options.

It’s possible to participate in the Home Buyer’s Plan more than once, but only if the original withdrawal amount has been repaid. Finding low interest rates for repayment is the key to being able to take out money more than once, in an affordable and convenient manner. There are government-issued guide books available that help explain this overall process, and make the repayment plan run as smoothly as possible. This plan is meant to help potential homebuyers, not put them into debt, so the plans are quite lenient and geared towards benefiting as wide of a cross-section of the Canadian public as possible.

Using an RRSP for a down payment makes the home buying process possible for many people who never before would have been able to turn up the funds to pay this large of a chunk of money. However, it is helpful to consult with a professional mortgage analyst or other financial advisor who will be able to give the latest advice according to the rules and regulations that go along with the Home Buyer’s Plan. With a little bit of knowledge and planning, a new home is within everyone’s reach, which is extremely exciting. Be sure to learn your rights however, and stick to a plan that you will be able to pay back at some point, lest you go into further debt.

Author:.

Marcus Arkan currently serves as the President/Principle Broker of a Canada Mortgage brokerage called Syndicate Mortgages Inc. After working with a number of Canada's top financial institutions, the experience and knowledge he gained throughout his professional career combined with his drive and entrepreneurial spirit led him to develop his own company. The operation began in 20...

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