You might have heard that the 2024 Federal Budget introduced some changes to the Home Buyers' Plan in an effort to make homeownership easier for Canadians. Great news! Is this avenue a right fit for you? Read on for more details and how they may benefit you.
What’s the Home Buyers' Plan?
The Home Buyers’ Plan (HBP) is a program that allows you to make tax-free withdrawals from your Registered Retirement Savings Plan (RRSP) to assist you with financing the down payment on a home. However, it’s important to note, the withdrawal is not taxable provided it’s repaid within a 15-year period. To qualify, you must be considered a first-time home buyer.
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What’s changing?
The 2024 budget suggested some adjustments to deal with the lack of housing, high rent costs and rising home values nationwide, hoping to help first-time buyers own homes more easily.
The improvements mentioned in the budget include an increased withdrawal limit from RRSPs and an extension of the RRSP repayment grace period.
Raising the withdrawal amount from $35,000 to $60,000
The 2024 budget announced that as of April 16, 2024, the limit individuals can withdraw from their RRSP is increasing from $35,000 to $60,000. As the price of property increases, so does the dollar amount of down payments. The adjusted withdrawal amount from RRSPs will assist first-time home buyers in meeting the larger down payment requirements of the real estate market.
Additionally, married couples can each withdraw up to $60,000 from their respective RRSPs, creating a maximum of $120,000 that can be used for a down payment.
Extended repayment grace period
Any funds withdrawn under the Home Buyers’ Plan must be repaid to their RRSP over a 15-year period, and at least 1/15 of your withdrawal must be repaid to your RRSP each year. Up to this point, the repayment period began as of the second year after the first withdrawal was made. The budget proposes extending the repayment grace period by three years, so first-time homebuyers will now have a grace period of up to five years. This means that anyone making their first withdrawal between January 1, 2022, and December 31, 2025, would have five years before repayment must begin.
The longer grace period will allow first-time home buyers to save more before beginning to repay the amount they borrowed from their RRSP. Each contribution that a homebuyer makes in the 15 years to their RRSP can be considered a repayment.
What does this mean for me?
If you’re in the market to purchase your first home, you’re likely aware of the challenges involved in saving up for a down payment – an essential first step towards home ownership. The Home Buyers' Plan is a great interest-free option for first-time home buyers looking to use the funds toward a down payment.