As the popularity of using Registered Retirement Savings Plan (RRSP) for the purpose of buying a home increases, I am surprised at the number of people in the mortgage industry that still do not understand the basics of how this program works. For those of you who are unfamiliar with it, Canada Customs & Revenue Agency (CCRA - formerly Revenue Canada) calls this program the Home Buyer’s Plan.

Generally speaking, the Home Buyer’s Plan (HBP) is a program where each individual going on the title of the home can withdraw up to $20,000 from their RRSP to buy or build a qualifying home. (Don’t get too caught up on the ‘qualifying’ idea; nearly every typical type of residence is included). This means that three people buying together can withdraw up to $60,000 (3 x $20,000) collectively. Withdrawals that meet all of the CCRA HBP conditions are not included in income in the year of withdrawal.

This program is also generally restricted to first time home buyers, or those individuals who have not owned a home for the required qualification period. For those interested in determining eligibility there is a simple test that can be followed on CCRA’s website.

The total amount withdrawn for the home purchase has to be withdrawn completely in the same calendar year. In order for the amount to be eligible for withdrawal it must have been in your RRSP for a minimum of 90 days. Through the program you have the ability to withdraw the amount all at once, or through a series of withdrawals not to exceed $20,000 per individual.

After you have withdrawn this amount, you then have up to 15 years to repay it to your RRSP. You are required to start your repayments the second year following the year you made your withdrawals. Normally you are required each year to repay an amount that is equal to 1/15 of the total amount you withdrew. There is no tax liability personally incurred when you make this minimum payment back to your RRSP (at least not from the HBP).

Since your earnings normally increase as the years go by, it is important to try and pay back the amount you borrowed as quickly as possible. This gives you the potential to get a higher tax deduction for your RRSP contributions in your higher earning years, as well as allowing for more years of tax sheltered growth while the money is in your RRSP.

For those interested, a more in-depth review of the program can be found by visiting CCRA’s website at: www.cra-arc.gc.ca, or by calling 1-800-267-1267.

Calum Ross is one of Canada’s top ranked mortgage advisors. He has appeared on Canada AM, Investment Television, Report on Business Television, City TV, is an industry speaker and mortgage columnist. He holds both a B.Comm and MBA in Finance.