Both the federal and provincial governments have a vested interest in encouraging consumers to purchase a home and thereby invest in the country’s real estate industry. This is because a major part of our economy is related to the activity of buying and selling homes. Because real estate transactions are so good for the economy, governments use incentive programs to encourage consumers to buy homes. This column will examine one such program.

The National Home Buyers’ Plan (HBP) is a popular program that helps people buy homes by allowing them to access money in their Registered Retirement Savings Plan (RRSP). The plan allows you to withdraw up to $20,000 from your RRSP to buy or build a qualifying home. Those who participate in the program must put the money back into their RRSP. However, they have fifteen years to make repayments. If you fail to make a requisite yearly repayment, the amount that was not repaid is included with your income and is therefore taxable in that year.

In order to take advantage of this program, certain conditions must be met. Here are the major points to keep in mind.

Firstly, you may only take advantage of the plan if you are a first-time home buyer. If you are married and either you or your spouse owned a home that either of you occupied as your principal place of residence in the past five years, you do not qualify for the program. Thus, if you have purchased or plan to purchase a resale home, you do not qualify for the program. Thirdly, you must intend to occupy the home as your principal residence.

Because participants may take up to 15 years to repay the money they take from their RRSP, each of the annual payments they are required to make may not be less than one-fifteenth of the total amount borrowed. Repayments begin in the second year after the withdrawal is made. Each year, the federal government sends participants a Home Buyers’ Plan Statement of Account that states how much they owe, how much they have repaid and how much they are required to repay that year.

Other rules also apply. You must buy a qualifying home before October first of the year after you withdraw money from your RRSP. You must also have entered into a written agreement to buy a home before you may withdraw money from your RRSP. Provided that you use it towards the purchase of the qualifying home, there are no restrictions on how you use the money. Finally, you must be a Canadian resident in order to qualify for the program.

If the National Home Buyers’ Plan makes sense for you, be sure to consult with your financial advisor and to ask for details.