Tired of renting, but not sure if you can afford to buy a home? The First Time Home Buyer Program in Ontario is designed to help you buy a home, even if you don’t have enough money for a down payment saved up just yet. There are important details to cover which homebuyers may not know about, so we cover them here.
Using Your RRSP
The First Time Home Buyer’s Program allows people to tap into their RRSP savings without being taxed. That means you can borrow up to $25,000 from your RRSP to buy or build a qualifying home for yourself or a related person with a disability, completely tax-free. The only catch is that this amount needs to be repaid within 15 years. This is one of the many reasons to start your RRSP as soon as possible if you have not yet.
How It Works
If you’re eligible for the Home Buyer’s Plan, all you need to do is fill out the ‘T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP’ form. Then you’ll need to provide this form to your RRSP issuer for them to finish the form and approve it. If you wish to withdraw more you can, however, any amount over $25,000 will need to be reported as income and taxed.
How The Repayment Process Works
You will have 15 years to repay the amount in full. Your repayment period will start the second year after the year in which you withdraw the funds. The payment amount will be set, and each year the CRA will send you a statement of account and notice of assessment that will outline your remaining balance, the amount paid so far, and the amount you will need to contribute back to your RRSP. You can also pay it off in full at any time if you have the resources to do so.
The 2019 budget introduced by the Liberals is set to implement a new program to assist first time home buyers with a shared equity mortgage that should help lower costs of buying a home. The Incentive would provide funding of 5 or 10 percent of the home purchase price. No ongoing monthly payments are required. The buyer would repay the Incentive, for example, at resale.
The new plan should help reduce monthly costs making it a little easier for first-time homebuyers to foot their bill. How it works looks a little something like this:
Purchase of an existing home (resale): $400,000 purchase at a 5% ($20,000) down payment and 5% ($20,000) CMHC shared equity mortgage would reduce the size of insured mortgage from $380,000 ($1973 mortgage payment a month) to $360,000 ($1853 mortgage payment a month) – a monthly savings of $120. This example used a 5-year term at 3.5% on a 25-year amortization and includes the CMHC Insurance premium of 4% with 5% down and 3.10% premium with 10% down.
There are still a lot of unknown information and questions at this point in regards to how this new proposed plan will be managed, deployed and repaid under what terms.
We await these much-needed details…
The Liberals’ budget also proposed to change the existing Home Buyer’s Plan to allow up to $35,000 to be withdrawn from the home buyer’s RRSP. This is an increase of $10,000 from the original plan. It will also apply to buyers who are facing divorce and common-law partnerships.
The First Time Home Buyer’s Program is an excellent way to use your savings towards a home purchase. However, if you haven’t put a dime towards your RRSP yet, don’t fret. There are several other incentives out there that can be used to help people obtain a home faster. To learn more about all the programs available to you, contact us at The Mortgage Advisors today.