A lot of first time home buyers don’t know you can borrow up to $25,000 tax free from their RRSP’s to buy or build your first home. If you are planning to buy a house with a spouse/partner, not only can you borrow $25,000, but your spouse/partner can borrow $25,000 tax free as well. This can really help you come up with the 20 per cent down payment in order to avoid paying for mortgage loan insurance. Not only can it help you avoid paying for mortgage loan insurance, but it also can help you negotiate a better mortgage rate with your lender. Listed below are the pros and cons of the RRSP first time home buyers plan as well as the eligibility and rules and regulations of the program.

Here are a few things to consider when borrowing from your RRSP’s:

The Pros:
1. Coming up with a larger down payment will help you lower your monthly mortgage payments.
2. Borrowing from your RRSP’s for first time home buyers is one of the only ways you can borrow from your RRSP’s tax free.
3. Borrowing from your RRSP’s can help you buy your first home if you don’t have much in terms of savings. This is one of the best options for young adults.
4. You can pay back what you borrowed as fast as you want. There is no penalty for paying more than what your scheduled payment amount is.
5. Borrowing from your RRSP’s is a tax free and interest free loan over a 15 years.

The Cons:
1. Taking money out of your RRSP’s means you are losing years of compound growth on your investments depending on how fast you reinvest your money.
2. Borrowing from your investments really means you are taking on more dept. Instead of owing money to credit card companies or the bank, you owe it to yourself.
3. If you don’t keep up with your payments, the unpaid amount is fully taxable as personal income for the year.
4. Thinking about declaring personal bankruptcy? You will still need to make payments to your RRSPs each year.

Eligibility:
1. To be eligible to borrow from your RRSP’s, you must be a first time home buyer and a Canadian resident.
2. You must intend to inhabit your home within one year of purchase or completion. There is no minimum amount of time you must live there.
3. In order to be eligible, you must have entered into a written agreement to purchase or build a home.
4. You cannot own the home for more than 30 days before you withdrawal your RRSP’s.

Rules:
1. You need to start repaying your RRSP no later than two year after you withdrawal the funds.
2. You are given 15 years to repay the full amount you borrowed from your RRSP. You need to repay 1/15th of the total amount each year in order to avoid taxes.
3. In order to borrow from your RRSP’s, the RRSP contribution must remain in the RRSP for at least 90 days before you can withdraw the funds. This means, you cannot make a last minute contribution to take advantage of the tax free, interest free borrowing.

For more information please visit the Canadian Revenue Agency website.