Would we be able to use the Home Buyers’ Plan to borrow from our RRSP for a down payment in this case? And would we be able to call the house our principal residence for tax purposes?
Finally, would it be wise to consider an alternative lender for our mortgage, even though our bank would give us a $500,000 mortgage? We’ve checked and the non-bank mortgage interest rates can be as much as 0.75% lower, which would go a long way to helping with affordability. – Irene
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A. That’s nice of your father to offer his help in your home purchase, Irene. And while the positives of his offer are obvious, I do also want to point out that there are some potential caveats: financial and otherwise.
There are several questions the three of you need to consider before moving forward. Will your father be a “silent” partner, or will he be involved in decisions related to the house? Who will decide—and pay for—repairs or renovations? What happens if your father wants to sell someday, or if you want to buy him out? Or what if he develops a cognitive impairment like dementia? What happens if he dies?
I think it’s important to consider these potential situations in advance of an undertaking like this to be sure everyone is on the same page. You’re the linchpin here, Irene, and you want to be sure you don’t put your relationship with your father, or your relationship with your partner, at risk. For that matter, you don’t want to risk their relationship with each other.
The statistics show that your situation is common for many first-time buyers, Irene. A fall 2021 report from CIBC Economics found that almost three out of 10 buyers received help from their parents—at an average of $82,000 nationally. In expensive markets like Toronto and Vancouver, the gifts were even more substantial. First-time home buyers in the first three quarters of 2021 received an average of $130,000 in Toronto and $180,000 in Vancouver. Move-up buyers in the two cities received even more help from their parents—$200,000 and $340,000, respectively.
Take advantage of the Home Buyers’ Plan to access your RRSP
You asked about using the Home Buyers’ Plan (HBP), which allows first-time home buyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) to be used towards the purchase or construction of a home that you intend to occupy as your principal place of residence.
If, in the past four years, neither you nor your common-law partner occupied a home that you or your common-law partner owned, you can both qualify for HBP (not to be confused with the first-time home buyer’s incentive program). That means you can access up to $70,000 combined. Your father’s part ownership would not limit your participation in the HBP.
You can make a single withdrawal or multiple withdrawals from your RRSPs, but the key is they must all take place in the same calendar year. You can also withdraw from multiple RRSPs if you have more than one, as long as the total withdrawals do not exceed $35,000 per person. And you must move into the home within a year of buying or building it.