Federal Government Enhances Support for First-Time Home Buyers with Increased RRSP Withdrawal Limits

Author:  Evelyn Oliver   |   Articles, General

In a significant move to aid first-time home buyers, the federal government announced an increase in the Home Buyers' Plan (HBP) withdrawal limit from $35,000 to $60,000. This change, revealed by Finance Minister Chrystia Freeland, aims to make home ownership more accessible by allowing prospective buyers to leverage their Registered Retirement Savings Plan (RRSP) more effectively towards their first home purchase.

The enhancement was announced on Thursday and will be included in the forthcoming 2024 federal budget, scheduled for presentation on April 16. The new limit will become effective immediately on the budget day, providing immediate benefits to eligible buyers.

Strategic Financial Planning for Home Buyers

Jamie Golombek, Managing Director of Tax and Estate Planning at CIBC Private Wealth in Toronto, emphasized the importance of this update for potential home buyers. By increasing the withdrawal limit, individuals are encouraged to contribute more to their RRSPs, knowing they can later use these funds towards a substantial down payment on their first home.

John Oakey, Vice President of Taxation at CPA Canada, also highlighted the necessity for taxpayers to stay diligent with their annual RRSP contributions to fully capitalize on the new, higher HBP limit.

Balancing FHSA and RRSP Contributions

Although Golombek recommends prioritizing contributions to a First Home Savings Account (FHSA)—which offers tax deductions, tax-sheltered growth, and tax-free withdrawals for home purchases—he notes the updated HBP provides an added incentive to save additional funds in an RRSP. With the potential combined savings from an FHSA and the enhanced HBP, individuals could significantly increase their available down payment funds, particularly when considering the impact of investment returns over time.

Implications for Couples and Long-term Savings

The revised plan is particularly advantageous for couples, as each partner can accumulate substantial amounts aimed toward the purchase of a shared home. The prospect of gathering up to $140,000 per person over time underscores the government's commitment to facilitating homeownership among younger Canadians.

Extended Repayment Grace Period and Mortgage Flexibility

In addition to increasing the withdrawal limit, the government is proposing changes to make managing finances easier for new homeowners. Individuals who withdraw from the HBP between January 1, 2022, and December 31, 2025, will benefit from an extended repayment grace period. This adjustment allows new homeowners to prioritize mortgage payments without the immediate pressure of repaying the withdrawn amount.

Furthermore, the 2024 budget will introduce the option of a 30-year mortgage amortization for first-time buyers of newly constructed homes starting August 1. This extension from the traditional 25-year mortgage term aims to reduce monthly payments, making homeownership more affordable for young Canadians and stimulating the construction of new homes.

These strategic enhancements to the Home Buyers' Plan are part of a broader governmental effort to support first-time home buyers in navigating the increasingly challenging housing market. By allowing greater access to RRSP funds and introducing more flexible mortgage options, the government is taking significant steps to ensure more Canadians can achieve their dream of homeownership.

Evelyn Oliver

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About the Author

Evelyn Oliver is a Wealth Advisor with Assante Capital Management Ltd. Please contact her at (519) 752-3155 to discuss your particular circumstances prior to acting on the information above.

Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

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