The Home Buyer's Plan (HBP) is a program under which you can, generally, withdraw up to $20m000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home.  Withdrawals that meet all applicable HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts.  However, before you can withdraw funds you must have entered into a written agreement to buy or build a qualifying home which you must occupy no later than one year after buying or building the home.

If you buy the qualifying home together with your spouse or other individuals, each of you can withdraw up to $20,000.  You cannot withdraw an amount from your RRSP under the HBP if you or your spouse owned the home more than 30 days before the date of your withdrawl.

Details:
- Up to $20,000 per person could be withdrawn tax-free from RRSP's to buy or build a principal residence.  Couples--including common-law-- will be able to withdraw up to $40,000.

- You have to meet the first-time buyer's condition.  You are not considered a first-time home bueyr if you or your spouse owned a home that you occupied as your principal place of residence in the past 5 years.  To determine past 5 years, the 4 years preceding the year you make your withdrawal plus the period in the year you make your withdrawal ending 31 days before your withdrawal is the rule adopted.

- Home buyers withdrawing funds do not have to pay income tax on the amount withdrawn, as long as the funds are repaid into an RRSP in the future.

- The 15-year repayment period will begin in the second calendar year following the calendar year in which the withdrawal is made.  In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal.  For example, those making withdrawals under the plan in 2004 will have until October 1, 2005 to acquire a qualifying home and their first annual repayment will be due by the end of 2006 or the first two months of 2007.  

-A special rule denies a tax deduction for contributions to an RRSP that are withdrwan within 90 days of the RRSP deposit being made.  Consequently, to get the normal tax break for a contribution and to use those funds under the plan, the money must be in your RRSP for a least 90 days before a withdrawal is made.

Existing home owners can use the HBP to purchase a more accessible home or a home for a disabled dependent relative where the individual withdrawing the funds:

- qualifies for the disability tax credit (DTC) and is buying a home that is more accessible for the individual or is better suited for the care of the individual;
- is related to a disabled individual who qualifies for the DTC and is buying a home for the benefit of the disabled individual that is more accessible for, or better suited for, the care of the disabled individual, or;
- is related to a disabled individual who qualifies for the DTC and is withdrawing an amount for the disabled individual to buy a home that is more accessible for, or better suited for, the care of the disabled individual.

First-time buyers: finding the home that's right for you

This year, Ontario consumers are can count themselves lucky in one important aspect: they are living in time that offers unequalled opportunities to realize the dream of home ownership.

Interest rates are among the lowest in decades and the availability of housing of all varieties is at the highest level in years.

In fact, in many situations, renting a family dwelling can actually be more expensive than buying. If you consider a $150,000 mortgage at 8 per cent for a 5-year term, the monthly payments would be less than $1,200 per month. Compare this to renting a suitable three bedroom apartment or townhouse in many urban centres, and it's easy to see that buying a home has become an attractive alternative.

If you take a $100,000 mortgage at the same rate and term, the payments shrink to less than $800 per month. Even better, if you're willing to accept a one-year term, the interest rate drops at least two percentage points. This would peg a $100,000 mortgage at only $650 per month and a $150,000 mortgage at around $975.

There is another important benefit to home ownership that often gets overlooked. Over the course of 25 years (the usual amortization period for mortgages), the total amount of money paid by many renters can actually exceed the amount paid by a home owner. This is due not only to the fact that mortgage payments can be cheaper than rent, but because rental fees generally increase over the long term. Of course, interest rates may also rise, but so probably will the value of the property. Therefore, additional equity will be gained.

Add to this the reality that after a mortgage is paid off, homeowners will no longer make monthly payments while renters will continue to bear the burden for the rest of their lives. This savings can greatly impact your quality of life upon retirement.

These figures are only intended as broad examples. The fact remains that money spent on rent is still money down the drain.

Regardless of the number crunching, the bottom line is that owning a house is the best way to assure the happiness and well-being of you and your family. A home gives a family room to grow, and room to prosper.

The best childhood memories many of us hold include Sunday dinners in the family dining room, retreating to the rec room when friends visit, or skating on the backyard rink throughout the cold winter months.

If you've made the decision to buy, the first person you should talk to is a Realtor. These real estate professionals will help you with virtually every aspect of your home ownership needs. From putting together a 'buying blueprint' that details your specific housing requirements, to giving advice on what you can afford, a Realtor can cut through the complexities.

Constructing a 'buying blueprint' is a critical step for first time buyers. In it, you will list items such as: how many bedrooms do you really need; is a finished basement a necessity or can you afford to wait; how big a yard do you need; and most importantly, where do you want to live? All these considerations will affect your ability to buy.

For example, many first-time buyers will forego a property close to the downtown core in favour of a suburban or even a rural home. This can lead to huge savings which can be used to either lower the mortgage and monthly payments, or to acquire a bigger home for the same cost.

Opting for a townhouse or resale home are other alternatives that can help first-time buyers escape the 'rent trap' and channel their funds into a solid investment.

When you've narrowed your requirements, a Realtor will scout properties for you and make recommendations on homes that suit your needs. Once you begin viewing, your Realtor will accompany you, offering advice on matters such as the amenities of the neighbourhood, repairs or upgrades that could be necessary, building inspections, carrying costs and so forth.

So, if you're one of the thousands of Ontario families caught in the cycle of paying rent and seeing nothing in return, now is the time to make a move. Buying a home can pay off in so many ways--you simply can't afford to pass up the opportunity.

Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.

Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.

When you require a mortgage for more than 75% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company`s decreases as the down payment increases. When you finance your property at 95%, a premium of 3.25% or 3.75% (depending on insurer) is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.0% or 2.5% (depending on insurer). If you can put down 25%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.

As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC/GE premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.

The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.