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Conservatives Propose Bigger RRSP HBP Limit

First-time buyers with $35,000 in RRSPs may soon find it easier to buy a home. The Conservatives are proposing to increase the maximum RRSP Home Buyers’ Plan (HBP) withdrawal.

“Today, I am announcing a re-elected Harper Government will raise this limit once again – from $25,000 to $35,000,” said Prime Minister Harper today. “With this increase, we will continue to help families know the pride and stability of having a place to call their own.”

Access to another $10,000 of down payment would let an otherwise qualified borrower purchase a home at a $200,000 higher price point, given the minimum required 5% down payment. Of course, one would still need to prove he/she can afford that much more, by meeting income, debt ratio and credit score requirements, etc.

It would be only the second hike in the limit since the HBP launched in 1992. Since then, home prices have soared 205%, but the HBP maximum has only been raised 25%.

According to CAAMP data:

  • First-time buyers account for 45% of home purchases
  • Most are between 25 and 34 years old
  • Their average purchase price is about $308,000
  • Their average down payment is $67,000 (21% equity)

Just a fraction of first-timers will benefit from this change, as the average RRSP contribution is only about $3,500 a year, and only 10% of FTBs use RRSPs to pad their down payment.

Home buyers who do take advantage of this measure and put down another $10,000 on their mortgage, would save over $1,000 of interest over five years at current rates. The trade-off, of course, is lost tax-deferred investment growth, among other risks.