Hamilton home buyers may have to dig deeper to take full advantage of incentive


Hamiltonians looking to utilize the Home Buyers' Plan (HBP) might have to be patient and save a little extra if they want to take advantage of the program.

The program is offered by the federal government and is a tax-free way for first-time home buyers to access savings from a Registered Retirement Savings Plan (RRSP), to go toward either resale MLS listings in Canada or a brand-new build.

The HBP can be especially effective for contributors who have been saving long-term, or who have RRSP matching through an employer pension, says a new report by Zoocasa.

Eligible buyers can pull up to a maximum of $35,000 from their RRSP or, if there are two people buying together who qualify as first-time buyers, they can each access the maximum to a total of $70,000.

The accessed funds also need to be repaid to your RRSP in annual instalments over a 15-year period starting two years after the funds were withdrawn. If a home buyer fails to make a repayment to their RRSP at any point, that portion of funds is earmarked as income for that year and taxed in full.

There are several concerns with this approach, however.

Foremost among them is the fact that any compound interest that one would have accumulated towards their retire would be gone.

Also, saving as much as you need to maximize the benefit could potentially take years and not many people who might be looking to take advantage of the program are likely saving money in an RRSP, the Zoocasa report points out.

According to Statistics Canada, while 35 per cent of all Canadians contribute to RRSPs, they are most used by households with a major income earner bringing in $80,000 - $99,999 (50.8 per cent), and between the ages of 35 - 54 — not the typical first-time homebuyer demographic..

In contrast, only 20.1 per cent of lower-earning Canadians use RRSPs, seeming to prefer Tax-Free Savings Accounts (TFSA) instead, which come with far fewer restrictions.

And, when it comes to a downpayment on a home, the maximum amount allowed through the HBP will only get you part of the way there.

In Hamilton, if you're purchasing a home under $500,000, the maximum allowable withdrawal under the HBP has got you covered. But anything above that, you may have to find additional funds.

In Ontario, if the purchase price of a home is less than $500,000, the minimum down payment is five per cent. If the purchase price is between $500,000 and $999,999, the minimum down payment is five per cent of the first $500,000, and 10 per cent of any amount over $500,000.

According to Zoocasa's data, the maximum HBP withdrawal limit covers approximately 5.6 per cent of an average home in Hamilton. (For their study, Zoocasa used a benchmark price for a home in Hamilton of $625,600).

Further study carried out by Zoocasa, found that for those earning median incomes across Canada, it would take between 4.3 - 6.0 years to save $35,000 for the HBP.

In Hamilton, it would take a median income earner a little over five years to save up that much.

If the market continues on its upward trajectory, as has been the trend the last number of years, the average price of a home after a little more than five years will be much higher.

And if the rules remain the same, first-time homebuyers in Hamilton might have to dig quite a bit deeper to come up with a downpayment.

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