Using RRSP’s on a down payment

Using RRSP’s as a Down-Payment


The Federal Government’s First-Time Home Buyers’ Plan (HBP) Revenue Canada will permit the use of RRSP funds for the purchase of a home by a first-time homebuyer.

Withdrawal of RRSP Funds for Down Payment:

• The current HBP permits the first-time homebuyer to withdraw up to $25,000 tax-free from their RRSP to buy or build a home. The amount withdrawn is treated as a loan and must be repaid within a 15-year period, commencing in the third year after the withdrawal. If the annual payment is not made it is treated as taxable income for that year.

• This Program may be used with the CMHC’s First-Home Buyer’s Program (5% down payment program).

You should plan to pay back 1/15th of the funds drawn per year. If you repay less than 1/15th in one year, the difference from the amount paid and 1/15th of the amount will be calculated as income and taxed at your marginal tax rate.

The following is a sample repayment schedule of a mortgage with an RRSP down payment:

Purchase Price$175,000.00
Less: 5% RRSP Down Payment$8,750.00
Mortgage Amount$166,250.00
Add: Canada Mortgage and Housing Corporation (CMHC) 2.5% premium$4,156.25
Total Mortgage$170,406.25
 
Monthly Mortgage Payment(at 5% fixed, 5 year term, 25 year amortization) $995
Add: Monthly RRSP Repayment OR(1/15th of Annual RRSP Repayment of $583.33) $48.61
Total Payments$1,043.61