First Time Buyer Benefit

The Home Buyers' Plan allows single or couples to withdraw up to $20,000 each, without penalty, from RRSP when used as a downpayment on a first home. The program has advantages and disadvantages, but it rates as one of the best ways to get that first home.

Pros/Cons of the HOme Buyer's Plan:

• Few things in life are free and the withdrawn amount must be repaid in incremental amounts over 15 years. The repayments start a couple of years after the purchase date of the home.
• While the money is outside the RRSP it is not earning interest. Weighed against that, however, is the consideration that the value of the home is most likely increasing.

Conditions of the Home Buyers' Plan:

• Under Canada Revenue Agency regualtions, RRSP funds are subject to tax if withdrawn within 89 days of contribution, so it is necessary to plan the transfer and withdrawal carefully.
• There are stipilations on withdrawing RRSP funds, depending on whether the funds are applied to an existing property (house or apartment) or a new construction.
• Buyers of existing homes must make their withdrawals in the same years or within 30 days after the closing date.
• Generally new- home buyers must buy or build their home before October 1 of the year following the year of the first withdrawal.
• Someone who has not owned a home at any time during the previous four years is considered a first-time buyer.

While there are exceptions to these rules, it is essential buyers follow the guidelines to avoid penalties and obtain the full benefit of this program.