Can I Use My Rrsp As A Down Payment?

By Author: Rob Parker
Total Articles: 311
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Buying a new home, particularly in today's hot market, can often mean that you find yourself a bit short of the cash you need to make a down payment. Even if you have enough for that down payment (and with the ever declining legal percentages, most of us will not have a problem), there are several reasons why you might want to consider and use existing RRSP funds to increase the down payment towards your home.

Chief among these reasons, of course, is the opportunity to cut your monthly mortgage payments down to amounts that are much more manageable. A good down payment can decrease your payments by a quarter or even more. You also save a lot of money in the long term when it comes to interest, as mortgage lenders stand to make the most money in interest off of you in the first five years of your mortgage terms.

So there are a few good reasons to consider using your RRSP contributions as a down payment, or as part of a down payment. A lot of us are a little bit in the dark when it comes to how RRSPs actually work; will you have to pay that money back?

First of all, RRSPs are still your money, and you are ...
... not required to pay them back by any sort of law. However, RRSPs do exist under specific tax laws when it comes to interest; they function in the same basic way as mortgages in this regard. Think of the government as a big organization; they make a lot of money through interest. RRSPs are a guaranteed source of revenue for government as funds deposited continue to earn interest; that's part of the reason why your contributions are tax-free. Naturally, the government does not want to lose this source of revenue, so there are penalties for using your RRSP contributions too early (the total profits have already been calculated and projected, so if you don't do your part they want to make at least some of that money!).

Changes to the Home Buyers' Plan, however, have exempted homebuyers who use RRSP contributions as part of a down payment from paying penalties on this usage. That makes RRSP savings a great source for funds on that house you don't have time to save up for.

Keep in mind that there are restrictions on how much of your RRSPs you can contribute to a down payment. In other words, you only have to pay them back if you want to, however any money not repaid as outlined in your yearly HBP statement will have to be included in that years income.