First time home buying can be a daunting task.
To help Canadians buy their first homes, the federal government introduced the Home Buyers’ Plan (HBP), a tax-free way to access savings otherwise set aside for retirement in a Registered Retirement Savings Plan (RRSP), which can be a great way to source funds for a home down payment, to go toward either resale MLS listings in Canada, or a brand-new build.
So how does the plan work?
“Eligible buyers can pull up to a maximum of $35,000 from their RRSP savings for their home purchase, though if two individuals are buying together and both qualify as first-time home buyers, they can each access the maximum to a total of $70,000,” said Zoocasa in its latest report.
“To be eligible as a first-time home buyer, the Government of Canada requires that you have not owned a home, or occupied one that your spouse has owned, in the four consecutive years before this home purchase is made.”
The report outlined that Statistics Canada showed while 35% of all Canadians contribute to RRSPs, those are mostly used by households with higher income earners bringing in $80,000 to $99,999 (50.8%), and between the ages of 35 and 54.
Meanwhile, only 20.1% of lower-earning Canadians use RRSPs, as they prefer Tax-Free Savings Accounts (TFSA) instead.
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And how long does it take to save the funds for the HBP?
To get the estimated time, Zoocasa looked at individual income thresholds in 14 regions across Canada based on 2017 tax filings from Stats Canada “assuming the income was earned income, eligible to create RRSP contribution room, and that individuals contributed the maximum to their RRSP annually (18% of earned income, to a maximum of $26,500). The study also compared how long it would take for those in the top 50%, 25%, and 10% income groups to save $35,000.”
Across Canada, Zoocasa found it would take an average of 4.3 to six years to save the $35,000.
Of course, Calgary is on the more affordable end of the deal when it comes to the top 50% of tax filers.
In fact, among all regions in the study, Calgary saw the shortest amount of time it would take for top $10 income earners to reach $35,000 — just 1.6 years.
Those in the top 50% income group (making $40,900) would take an average of 4.8 years while those in the top 25% income group (75,700) would take 2.6 years to save the same amount.
Edmonton was quite similar to Calgary, though it had a slightly lower top 10% income threshold.
Outside of the Prairies, Vancouver’s benchmark home price is $1,001,000, and the top 50% would need 5.7 years to save the $35,000.