Using Your RRSPs To Buy A Home - The Home Buyers' Plan (HBP)
The Home Buyers' Plan is a program established by the federal government that allows an individual, who is a qualified first-time home buyer, to withdraw up to$20,000 tax-free from their RRSPs (that's $40,000 per couple) to buy or build a qualified home, located in Canada and be the buyer's principal residence. The borrower must be a resident of Canada and must not have previously participated in the Home Buyers' Plan. To participate, you must complete "Form T1036" and take to institution that holds your RRSPs . These forms are available at the institution or at Income Tax offices.
If you participate in the Home Buyers' Plan, you must, however, repay the amount you withdrew within a 15-year period in the amount of 1/15 per year. If you repay less than the amount you should repay, that difference is then added to your taxable income on your income tax return and you are taxed at your tax rate.
Free Money for First Time Buyers
How would you like to get free money? Well, if you are a First Time Buyer or you haven't owned a home in the last 5 fiscal and you have not previously participated under the Home Buyers' Plan, here is a strategy to FREE MONEY. Simply use your unused RSP limit, with your own savings or getting an RSP loan and keep it for at least 90 days. If you fall in the 40% tax bracket, on a $3,000 RSP, you would get a $1,200 income tax refund. Once you are ready to buy, and 90 days have passed, you can remove it under the Home Buyers' Plan. If you had a RSP loan, simply collapse the RSP and pay off loan, but you're still getting the income tax refund.
Ontario Home Ownership Savings Plan (OHOSP)
The Ontario government created this program to encourage first-time homebuyers into the real estate market. The Plan may be opened at any financial institution, including the Province of Ontario Savings Office. It is a savings account, earning interest at the rate the institution is offering, and since the OHOSP is not a tax shelter, any interest earned is taxable. Depending on your income, a maximum annual contribution to the plan could give you an Ontario Tax Credit of up to $500 ($1,000 per couple) on your income tax return. To qualify, your net income must not exceed $40,000 ($80,000 per couple). There is no limit to how much you contribute, but the credit is based on a maximum contribution of $2,000 ($4,000 per couple) per year. You may make contributions for up to 5 consecutive years, and once it's closed, you must purchase within 2 years after that.
The Cash Back Program
How would like to receive 3% of the mortgage amount cash, paid to you, on closing? That's $4,500 on a $150,000 mortgage. This program is available to everyone, but since we are discussing first-time home buyers, it could help you in the following ways: with closing costs, with appliances or furniture, paying down some other debt, or making a prepayment on your mortgage, right after closing. The cash back program can be used by someone who already has a mortgage and if the rate is considerably higher than the going rate, it pays to break that mortgage, and use the cash back to pay for the penalty costs. It's the smart moves like this that again, stack up to thousands of dollars in savings