Under the Home Buyers' Plan (HBP), would-be home buyers can borrow up to $25,000 tax free from their RRSPs to buy or build a home. If you are purchasing the home with a spouse, you can both withdraw up to $25,000 from each of your RRSP accounts.

Want to see if making a bigger down payment using the HBP buys you a home sooner?

Check out this Mortgage Calculator to tally various down payment scenarios!

How to qualify for the HBP

You are eligible for the HBP if you and your spouse are both first time home buyers, or have not owned your principal residence at any time during the year of your RRSP withdrawal and the four preceding years. If you've already purchased a home, then you have up to one month after the sale to still apply to the plan. Lastly, you must be a Canadian resident to qualify.

RRSP repayment rules

You need to start repaying the money to your RRSP the second year following the year in which you made your withdrawals. You have up to 15 years to repay the full amount where each year 1/15th of the total amount is due. The Canada Revenue Agency (CRA) will send you statements outlining your payment schedule.

HBP Advantages

The HBP gives you a tax free and interest free way to access the money in your RRSP, allowing you to buy a home sooner. If you can use your RRSP under the HBP plan to make a 20% down payment, then you may qualify for a lower interest rate on your mortgage and may avoid paying Mortgage Loan Insurance -- which could save you thousands of dollars!

HBP Disadvantages

While the HBP gives you a way to get into the real estate market sooner, you should be aware of the possible downsides of missing a repayment and touching your RRSP savings before retirement.

Missing Repayments: If you don't make a full payment in a year, the unpaid amount is fully taxed as income in your hands.
Loss of Tax Free Growth: Borrowing money from your RRSP means you're losing out on up to 15 years of tax free growth, which may not be made up by the increase in home equity over time.

Contribution Rules: You cannot make an RRSP contribution and then immediately withdraw that contribution under the HBP -- you must wait at least 90 days.

Declaring Bankruptcy: If you declare bankruptcy, you still need to make the payments back to your RRSP, or the money will be taxed as income in the years where you don't make a payment.

Check out the Home Buyers' Plan details at the Canada Revenue Agency for forms and more information.

Your Turn: Have you used the Home Buyers' Plan to help you purchase a home? Got any tips to share?