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Is the Home Buyer’s Plan Right for You?

A couple of days ago we talked about the RRSP Home Buyer’s Plan and the questions that have arisen surrounding it. Namely, should the government get rid of it, in order to encourage savers and investors to leave their money where it is, and not go into debt?

The question came up after the Canada Revenue Agency reported that 47 per cent of people who borrowed from their RRSP don’t pay the funds back on time, and sometimes not at all. The debate, if it were to ever officially come up, would be an extremely heated one, and one that would be likely to see a lot of backlash.

But aside from home buyers simply wanting to use their RRSPs to make a down payment, and Realtors wanting to still sell homes to those home buyers, the entire debate still boils down to one thing: is it good for home buyers? Or is it hindering their opportunities for their future?

The problem is of course, that should you take advantage of the ability to withdraw $25,000 from your RRSP to buy your first home, you will need to repay that amount over a period of 15 years. Because you’re not taxed on that money at the time of withdrawal (as you would be if you withdrew it for most other purposes,) the government needs to ensure that those funds are replaced. If they aren’t you’ll face a severe tax penalty every single year that you miss even a portion of your payment until the funds are fully replaced, or until all taxes are paid on the money.

This leaves home buyers with a big question: should they withdraw from their RRSPs to make their down payment; or should they stay secure in their future – and not risk paying high taxes in the meanwhile?

The question really all boils down to whether or not you can repay the funds in the timeline outlined by the government. If you can’t, then borrowing from your RRSP to make your down payment is probably not the wisest idea. While it will get you that house that much faster, it all goes back to being careful not to just become “house-hungry,” and not putting your future at risk simply in order to secure an asset today.

If however, you know that you’ll be able to easily repay the RRSP funds, then the Home Buyer’s Plan was meant for you, and you should certainly take full advantage of it. Remember, the Home Buyer’s Plan was put into effective to help home buyers, not to hinder them. It’s up to you to make sure that this is exactly the way it works.

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