First Time Home Buyer Mortgage Plans

 

Buying a home in Canada has become nearly unattainable for some first-time homebuyers due to soaring home prices, high mortgage rates, and the overall high cost of living, making affordability a significant challenge.

For first-time homebuyers, the government provides various incentives in an attempt to ease the path to homeownership.

First-Time Home Buyer Incentive

We won’t delve into the First-Time Home Buyer Incentive as it will be discontinued as of March 31, 2024. Moreover, it involved the government owning equity in your home, making it an unpopular option.

Home Buyer’s Plan

The Home Buyers’ Plan (HBP) enables you to withdraw up to $35,000 from your registered retirement savings plans to purchase or construct a home. This withdrawal functions as an interest-free loan to yourself, with a repayment period of up to 15 years. A missed payment will be added to your taxable income for the year – which is still better than paying taxes on the entire amount in the initial year it was withdrawn. But be careful if you’re planning to use this for your downpayment – some RRSPs, such as locked-in or group RRSPs, do not allow you to make withdrawals. Verify this before you start house hunting!

First-Time Home Buyers’ Tax Credit

The First-Time Home Buyers’ Tax Credit is a $10,000 non-refundable tax credit (up from $5,000 in 2022). If you’re buying a home for the first time, claiming the First-Time Home Buyers’ Tax Credit can get you a total tax rebate of $1,500. If you’re buying with a partner, this credit can only be used once per home. Although $1,500 isn’t a ton of money, especially in the context of buying a home, it still helps!

First Home Savings Account

This is the most recent strategy to help new home buyers. The First Home Savings Account allows savers to contribute up to $8,000 annually (up to a lifetime max of $40,000) tax-free. The funds housed within the FHSA can grow tax-free, and unlike the RRSP Home Buyer’s Plan, the funds never need to be paid back if they’re withdrawn to purchase a home. You will also receive a tax return on the funds contributed to the account.

As with all government offerings, it is prudent that you read the fine print to ensure you qualify and execute these programs properly to avoid unexpected tax liabilities.

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