Real Estate

RRSP Withdrawal for First Time Home Purchase

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  • Nov 20th, 2019 1:47 pm
Member
Sep 15, 2018
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RRSP Withdrawal for First Time Home Purchase

Hey guys, I’m looking to put some money into an RRSP. If I lock in my RRSP for a fixed term, will I be able to break it and withdraw under the Home Buyer’s plan to purchase my first- time home before the term is finished without any penalties and keep the accumulated interest up to that point of withdrawal?

My financial advisor at the bank says yes but it says normally we wouldn’t be able to on Canada’s website so I’m a little confused.

Thanks.
23 replies
Deal Addict
Jun 10, 2008
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What do you mean by locking your RRSP for a fixed term? Like buying GICs in your RRSP?
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Jun 24, 2015
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when you take money from your RRSP for first time home buyers, its not really a withdraw, its more of a "borrow" from your RRSP and pay it back later. As for borrowing from a RRSP with a locked in term such as a GIC, you have to ask your financial advisor this question as only they can tell you if a hbp withdraw can cause your gic to break.
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Apr 2, 2010
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This is a complex matter, I would recommend googling up articles about the RRSP concept, pros and cons. Then separately about Home Buyer’s Plan to learn more.

The most summarized form of these two concepts are:
-RRSPs are a tax shelter tool that works by deferring taxes now for a later time (say retirement when in theory you would earn less).
*When you contribute to the RRSP, you get to take off that amount off your income.
*When you normally withdraw not Home Buyer’s Plan you have to add that amount to your income (e.g. after retirement). This increases your income in those years and that has tax implications.

-Home Buyer’s Plan- This is the government's permission to borrow your own money out of the RRSP when you buy a house (as per the rules laid out on the CRA site), eg rules:
* Must put in the money 90 days before ownership
* They money taken out must be paid back into the RRSP in the second year after ownership over 15 years. e.g. If you took out $15,000 under the HBP today , then starting 2021 you would have to pay back $1000 every year for 15 years back into a RRSP.
* This must be the 'first' owned property.

More rules apply but just sharing why you need to read up as much as you can to know how well this works for you.


As for the 'breaking the fixed term' part of the question. This is an independent question to the RRSP or HBP program.
Keep in mind, the RRSP is a container for financial instruments. You could have a stock shares, savings accounts as well as fixed deposits in the RRSP. The fixed nature of the Fixed deposits do not change because its an RRSP.

In my opinion, I would assume every fixed depsoit cannot be broken for RRSPs or HBPs. The normal rules apply. However only redeemable fixed deposits would be redeemable as per the payment schedule. For example Hubert has a term where its redeemable anytime but you only get to keep the interest already paid out in prior quarters:
https://www.happysavings.ca/products/te ... ear-terms/

Good luck with your information hunting and sorry if I confused you.

@everyone else: Please chime in if I have made a mistake. :)
Deal Expert
Aug 22, 2011
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CRA doesn't care if you break the "term" with the bank.
All they care is that you start making payments after the first year, or declare the re-payment amount as income.
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Dec 25, 2008
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Kyle12345 wrote: Hey guys, I’m looking to put some money into an RRSP. If I lock in my RRSP for a fixed term, will I be able to break it and withdraw under the Home Buyer’s plan to purchase my first- time home before the term is finished without any penalties and keep the accumulated interest up to that point of withdrawal?

My financial advisor at the bank says yes but it says normally we wouldn’t be able to on Canada’s website so I’m a little confused.

Thanks.
It depends on the rules of the GIC. I've never heard of ones where you break and still keep full interest. I believe some long term ones can be broken and you'll get nominal interest but that usually less if you kept it in a regular high interest savings account.
There are short term GICs available you can look into. I'm in the same both and put in in a 9 month gic since I'll need the money next year.
I would trust the terms listed on the website but If your advisor is promising differently get it in writing.
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Sep 15, 2018
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dcpyke wrote: It depends on the rules of the GIC. I've never heard of ones where you break and still keep full interest. I believe some long term ones can be broken and you'll get nominal interest but that usually less if you kept it in a regular high interest savings account.
There are short term GICs available you can look into. I'm in the same both and put in in a 9 month gic since I'll need the money next year.
I would trust the terms listed on the website but If your advisor is promising differently get it in writing.
Hmmm. I’m also looking at short term. It’s either 1.9% for 1 year variable where it’s redeemable anytime or 2.4% for 1 year locked in. Was going to go with redeemable until he mentioned that the 1 year locked could be broken only in the first time home buyers scenario and keep interest as well. I too have never heard of breaking locked GICs without penalty which is why I thought I’d ask. I agree, I shall try to get it in writing. Thanks.
Member
Sep 15, 2018
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barricuda wrote: What do you mean by locking your RRSP for a fixed term? Like buying GICs in your RRSP?
Sry yes, that’s what I mean, buying GICs within the RRSP.
Member
Sep 15, 2018
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GoodFellaz wrote: when you take money from your RRSP for first time home buyers, its not really a withdraw, its more of a "borrow" from your RRSP and pay it back later. As for borrowing from a RRSP with a locked in term such as a GIC, you have to ask your financial advisor this question as only they can tell you if a hbp withdraw can cause your gic to break.
Sry yes that’s what I meant, borrowing. He did mention that the locked in GIC could be broken only in the first time home buyer’s scenario and I would keep the interest. It’s just that I’ve never heard of breaking a locked in GIC without penalties such as losing the interest or even some of the principle value. I couldn’t really find anything online either so thought I’d ask here before I agree just in case someone here was in a similar scenario.
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Honestly, are you worried about a few points? Why so conservative with the investment. I mean, buying a house is risky as shiiit, but you want to buy a GIC. Even with 35000 limite, we are talking about less than a 1000 bucks..no?
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Nov 19, 2004
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Kyle12345 wrote: Sry yes, that’s what I mean, buying GICs within the RRSP.
You are still bound by the terms of the GIC. You can withdraw from the rrsp for the HBP, but if you break the terms of the investment, then you pay the penalties associated with exiting the GIC early. A rrsp is just an umbrella for your investments.
Member
Sep 15, 2018
439 posts
90 upvotes
martydxb wrote: This is a complex matter, I would recommend googling up articles about the RRSP concept, pros and cons. Then separately about Home Buyer’s Plan to learn more.

The most summarized form of these two concepts are:
-RRSPs are a tax shelter tool that works by deferring taxes now for a later time (say retirement when in theory you would earn less).
*When you contribute to the RRSP, you get to take off that amount off your income.
*When you normally withdraw not Home Buyer’s Plan you have to add that amount to your income (e.g. after retirement). This increases your income in those years and that has tax implications.

-Home Buyer’s Plan- This is the government's permission to borrow your own money out of the RRSP when you buy a house (as per the rules laid out on the CRA site), eg rules:
* Must put in the money 90 days before ownership
* They money taken out must be paid back into the RRSP in the second year after ownership over 15 years. e.g. If you took out $15,000 under the HBP today , then starting 2021 you would have to pay back $1000 every year for 15 years back into a RRSP.
* This must be the 'first' owned property.

More rules apply but just sharing why you need to read up as much as you can to know how well this works for you.


As for the 'breaking the fixed term' part of the question. This is an independent question to the RRSP or HBP program.
Keep in mind, the RRSP is a container for financial instruments. You could have a stock shares, savings accounts as well as fixed deposits in the RRSP. The fixed nature of the Fixed deposits do not change because its an RRSP.

In my opinion, I would assume every fixed depsoit cannot be broken for RRSPs or HBPs. The normal rules apply. However only redeemable fixed deposits would be redeemable as per the payment schedule. For example Hubert has a term where its redeemable anytime but you only get to keep the interest already paid out in prior quarters:
https://www.happysavings.ca/products/te ... ear-terms/

Good luck with your information hunting and sorry if I confused you.

@everyone else: Please chime in if I have made a mistake. :)
Thanks for the reply. I too have always assumed that fixed deposits cannot be broken which is why it made me think twice when he mentioned it could be under the first time home buyers scenario. I did try and search online, but couldn’t really find an answer for the scenario that I’m currently in. I think I’m going to try to push to get it in writing before I agree.
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Sep 15, 2018
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vkizzle wrote: CRA doesn't care if you break the "term" with the bank.
All they care is that you start making payments after the first year, or declare the re-payment amount as income.
I understand that the CRA wouldn’t care if I break the GIC, it’s just that I would care if I end up facing penalties.
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Sep 15, 2018
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don242 wrote: You are still bound by the terms of the GIC. You can withdraw from the rrsp for the HBP, but if you break the terms of the investment, then you pay the penalties associated with exiting the GIC early. A rrsp is just an umbrella for your investments.
This is what I figured, not really sure if what the advisor stated is true. Thanks.
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Sep 15, 2018
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mkjr wrote: Honestly, are you worried about a few points? Why so conservative with the investment. I mean, buying a house is risky as shiiit, but you want to buy a GIC. Even with 35000 limite, we are talking about less than a 1000 bucks..no?
Well normally if we break a locked in GIC, we lose the interest we accumulated and I believe the principal won’t be guaranteed either so a portion of the principal as well. So yes I guess you’re right, maybe around $1000 or less but still, that’s good money that could be used for something in the home lol.
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Nov 19, 2004
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Kyle12345 wrote: This is what I figured, not really sure if what the advisor stated is true. Thanks.
It still may be true that you can get out of the first year without penalty. I guess it would depend on the product and what the redemption rules are. Basically to withdraw for the HBP you need cash. So stocks, mutual funds, GICs, etc would have to be sold so you can withdraw the funds. Any fees/penalties associated with doing that, if applicable, would still apply.
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Sep 15, 2018
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Thanks for the replies guys. Honestly if I don’t see it in writing I think I’m just going to purchase the redeemable RRSP GIC. The difference between the 2 interest rates is 0.5% and I will most likely borrow it for the home purchase by the end of this year. So wouldn’t really make too much of a difference anyways at the end and saves me the headache if I indeed cannot break it without a penalty. I only was really looking to see if anyone had a similar experience or knew for sure.
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Sep 15, 2018
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don242 wrote: It still may be true that you can get out of the first year without penalty. I guess it would depend on the product and what the redemption rules are. Basically to withdraw for the HBP you need cash. So stocks, mutual funds, GICs, etc would have to be sold so you can withdraw the funds. Any fees/penalties associated with doing that, if applicable, would still apply.
True, I’m gonna see if I can get a written copy of the redemption rules. Thanks.
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Apr 2, 2010
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Kyle12345 wrote: Thanks for the replies guys. Honestly if I don’t see it in writing I think I’m just going to purchase the redeemable RRSP GIC. The difference between the 2 interest rates is 0.5% and I will most likely borrow it for the home purchase by the end of this year. So wouldn’t really make too much of a difference anyways at the end and saves me the headache if I indeed cannot break it without a penalty. I only was really looking to see if anyone had a similar experience or knew for sure.
Normally these redeemable gics have a really bad rate, you might want to check out hisas in rrsps,e.g. Hubert financial has 2.5% and these are many others with a similar rate.
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Is there a time limit to withdraw from your RRSP for the FTB program? Online, it just mentions that you have to withdraw within 30 days of closing, but wouldn't you need to do it before hand?

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