A boost for buyers: Understanding the changes to RRSP withdrawal limits for first-time homebuyers

The Government of Canada recently proposed several key changes to the rules surrounding how much first-time homebuyers can withdraw from their Registered Retirement Savings Plans (RRSPs) to fund their down payment, and how quickly they have to pay that money back.

The new rules could have a significant impact on how first-time buyers source the money they need to put down when purchasing a home. They could also dramatically boost many first-time buyers’ saving power, and help thousands of Canadians to buy a home of their home sooner.

What changed

Through the federal Home Buyers’ Plan (HBP), first-time buyers have long been allowed to take some money out of their RRSPs to use as a down payment when buying a home. Until now, the maximum amount they could withdraw was only $35,000 per person. In addition, they had to start repaying that money back into their RRSPs just two calendar years after they withdrew it.

Given how rapidly house prices have risen in Canada, the $35,000 limit was simply not enough to make much of a difference to the average buyer. But as of April 16, 2024, the government has raised the RRSP withdrawal limit substantially, to a total of $60,000 per person.

They also extended the tax-free repayment grace period from two to five years. As a result, first-time buyers across the country will get a little extra breathing room from all the other costs that come with taking out a mortgage and buying a home before they have to start thinking about paying back the withdrawals.

The impact on homebuyers

For first-time homebuyers (defined as someone who’s either buying their first home or who hasn’t owned a home for five calendar years), these changes could make homeownership more accessible, and possibly alter the landscape of the Canadian housing market. This is especially true for high-cost areas like Vancouver, Richmond and the rest of the Lower Mainland.

Since the new withdrawal limit is calculated on a per-person basis, for example, a couple who wanted to take advantage of the plan could collectively withdraw up to $120,000 from their RRSPs to put towards their down payment.

Combined with other new programs like the First Home Savings Account (FHSA), the First-Time Home Buyer’s Tax Credit (HBTC) or the recent federal announcement of 30-year mortgage amortizations for first-time buyers purchasing new homes, these extra incentives could make it possible for many Canadians to buy a larger or better home, or take out a smaller mortgage with more affordable monthly payments. For others, it could potentially make the difference between whether or not they can afford to buy a home at all.

In our opinion, the new withdrawal limits have made the Canadian Home Buyers’ Plan much more attuned to the financial realities of today’s housing market. They’ve also turned Canadians’ own RRSPs into a powerful new savings tool, which every first-time buyer should consider adding to their down payment toolbox.