Buying Using an RRSP

Some buyers can be qualified under the Home Buyers’ Plan to use RRSP’s towards the purchase of a new home. This is advantageous for many buyers because this money is withdrawn without penalty. This means not taxes are owed and no interest is paid.

A home buyer, and his/her spouse, are each able to withdraw a maximum of $20,000 from their respective RRSP’s. This money can not be used to purchase a home which will be rented out to other tenants. The RRSP must be replenished within 15 years with annual equal installments, and you are allowed 2 years before you make your first payment.

The "HBP" permits an individual to establish an RRSP with borrowed funds, and then use the resultant tax refund for a down payment. In this scenario:

1. The individual borrows funds that are contributed to an RRSP.
2. After a 90-day period, the RRSP is collapsed to repay the loan.
3. The client receives a tax refund that can be applied to the purchase of a home.

These funds re considered as an acceptable source of down payment provided that:

1. The tax refund is in the individual's hands at the time of closing.
2. The lender can verify that the borrower has proven liquidable assets equal to a minimum equity of 5% of the purchase price.