The Home Buyers’ Plan (HBP) allows first-time home buyers in Canada to withdraw up to $35,000 from their RRSP tax-free to use as a down payment. You must repay the full amount over 15 years, starting the second year after withdrawal. If you miss repayments, the CRA adds the missed amount to your taxable income for that year.

The Down Payment Challenge for First-Time Buyers

Saving for a down payment is one of the biggest barriers to home ownership in Canada. With property prices in major markets requiring down payments of $50,000 or more, many first-time buyers struggle to accumulate enough cash while also contributing to retirement savings.

The Home Buyers’ Plan addresses this tension by letting you temporarily access your RRSP funds without triggering taxes or penalties. According to the Canada Revenue Agency, the HBP provides a bridge between retirement savings and home ownership for eligible Canadians (CRA, 2026).

How the Home Buyers’ Plan Works

The HBP operates as an interest-free loan from your own RRSP. Here is how the mechanics break down.

Withdrawal Limit: You can withdraw up to $35,000 from your RRSP (as of 2026, confirm current limits on the CRA website). If you are buying with a spouse or common-law partner who is also a first-time buyer, you can each withdraw $35,000, for a combined total of $70,000.

Eligibility Requirements: You must be a first-time home buyer, defined as someone who has not owned a home in the current year or the previous four calendar years. The funds must have been in your RRSP for at least 90 days before withdrawal. You must also have a written agreement to buy or build a qualifying home in Canada, and you must intend to occupy it as your principal residence within one year.

Repayment Schedule: You have 15 years to repay the full amount. Repayments begin in the second year after the year you withdrew the funds. The minimum annual repayment equals the total withdrawal divided by 15. For a $35,000 withdrawal, that works out to $2,333.33 per year.

Tax Consequences of Non-Repayment: If you do not repay the minimum amount in any given year, the CRA adds the shortfall to your taxable income for that year. This means you lose the tax-sheltered RRSP contribution room permanently and pay income tax on that amount at your marginal rate.

As covered in Principles of Finance, retirement accounts like RRSPs provide tax-deferred growth, making it crucial to understand how temporary withdrawals affect long-term accumulation.

A Worked Example

Sarah, a first-time buyer in Toronto, has $40,000 in her RRSP and wants to buy a condo. She withdraws the maximum $35,000 under the HBP in 2026 to help cover her down payment. Here is what her repayment looks like.

Withdrawal Year (2026): Sarah withdraws $35,000. No tax is withheld because it is an HBP withdrawal, not a regular RRSP withdrawal.

Read also: First Home Savings Account (FHSA) vs Other Savings Strategies in Canada

First Repayment Year (2028): Repayments begin in 2028 (the second year after 2026). Sarah must repay at least $2,333.33 each year. She makes this repayment by contributing to her RRSP and designating it as an HBP repayment on her tax return (Schedule 7).

Years 2028-2042: Sarah repays $2,333.33 annually for 15 years. By 2042, she has fully repaid the $35,000 and restored her RRSP balance.

Scenario if Sarah Misses a Payment: In 2030, Sarah faces unexpected expenses and contributes only $1,000 to her RRSP instead of the required $2,333.33. The shortfall of $1,333.33 is added to her taxable income. At a 30% marginal tax rate, she owes an additional $400 in taxes. She also permanently loses that $1,333.33 in RRSP contribution room.

Impact on Retirement Savings

Borrowing from your RRSP means those funds miss out on years of tax-sheltered compound growth. If Sarah’s $35,000 had stayed invested and earned 5% annually over 15 years, it would have grown to approximately $72,800. By withdrawing it, she gives up roughly $37,800 in potential growth, even if she faithfully repays the full amount.

This trade-off matters. The HBP can help you enter the housing market sooner, but it delays retirement savings accumulation. Many financial planners suggest using the HBP only when home ownership provides stability benefits that outweigh the lost investment growth, or when you can afford to make RRSP contributions above the minimum HBP repayment to stay on track for retirement.

HBP vs. FHSA

Canada also offers the First Home Savings Account (FHSA), introduced in 2023, which combines the tax benefits of both an RRSP and a TFSA for first-time home buyers. Unlike the HBP, FHSA withdrawals for a first home purchase do not need to be repaid. If you have both options available, the FHSA may be the better choice for future home savings, while the HBP remains useful for accessing existing RRSP funds.

When the HBP Makes Sense

The HBP works best when you have sufficient RRSP savings, a clear repayment plan, and confidence that entering the housing market now aligns with your long-term financial goals. It is less suitable if you are already behind on retirement savings or uncertain about affording both mortgage payments and annual HBP repayments.

Before using the HBP, confirm your eligibility and understand the repayment obligations. Consult with a Certified Financial Planner to assess how an HBP withdrawal fits into your overall financial plan, particularly your retirement readiness and tax situation.

Disclaimer: This information is educational and general in nature. It does not constitute personalized financial, tax, or legal advice. Tax rules and contribution limits change annually. Confirm current HBP limits and eligibility requirements on the CRA website before making any decisions. Consult a qualified financial adviser or CPA for advice tailored to your personal circumstances.