A larger down payment can make buying a first home feel more achievable. It can reduce the mortgage needed and give a household more room in the monthly budget. For Canadians with retirement savings already invested, the Home Buyers’ Plan (HBP) offers one way to help build it.
Eligible buyers can generally withdraw up to $60,000 each from their Registered Retirement Savings Plan (RRSP) under the plan without immediate tax on the qualifying withdrawal. A couple who both qualify could access up to $120,000. That’s a substantial amount to bring to the purchase, although it’s money from your own retirement savings.
The benefit is flexibility. You can use an existing pool of savings at a time when the down payment is the obstacle. The cost is giving that retirement money a new job and accepting the repayment commitment that comes afterwards.
Repayment in the budget
The HBP generally uses a 15-year repayment period. On a full $60,000 withdrawal, a simple annual repayment works out to $4,000 once repayment begins. Designated HBP repayments aren’t deductible like an ordinary new RRSP contribution.
Under the current rules, temporary relief extends the start of repayments to the fifth year following the first withdrawal for qualifying first withdrawals made from 2026 through 2028. That gives a new homeowner more time to settle in, but the eventual obligation still belongs in the plan.
The practical gain can be meaningful. A buyer who borrows $60,000 less has a smaller mortgage to service. Actual monthly savings depend on the rate and amortization. The HBP repayment and the retirement growth given up mean it should fit the whole household budget, not just the offer price.
A $4,000 annual repayment is about $333 a month to build into that future budget. Treating it like another planned savings payment makes the eventual start less disruptive. A shortfall in the required repayment generally becomes taxable income for that year. The plan is most helpful when the purchase and the rebuilding of retirement savings are affordable together.
Another way to own housing exposure
Investors can participate in mortgage lending without buying another property. EQB (TSX: EQB), the company behind Equitable Bank and EQ Bank, earns from lending and other financial services. Its mortgage business connects it to the market that first-time buyers are trying to enter.
An expanded savings base can help a lender fund its loans. EQB’s acquisition of PC Financial adds customers and another way to build those relationships. The attraction is more than a single home-buying programme: a larger financial business can potentially earn more from each customer over time.
Its fiscal third-quarter adjusted earnings were $2.12 a share, with an adjusted return on equity (ROE) of 10.3%. ROE shows the profit earned relative to shareholders’ money in the business. Better returns would help make customer growth more valuable to investors.
Profitable growth
EQB reported book value of $86.86 a share. At its recent share price of $117.74, buyers were paying about $1.36 for each dollar of that accounting value. The price assumes the business can earn worthwhile returns on the capital, so the quality of the loans is especially relevant.
I see room for a growing challenger bank in Canada, but I’d buy gradually. More customers are useful only when lending and services earn enough after expenses and losses. Mortgage problems, higher funding costs, or a difficult integration could slow that progress.
For a diversified Canadian stock portfolio, EQB offers a housing connection with a different growth profile from the largest banks. It can sit alongside dividend holdings without making the entire portfolio depend on property prices rising.
Bottom line
The HBP can help a qualified buyer use savings more flexibly, while EQB offers shareholders a way to earn from lending and customer relationships. I like the longer-term growth opportunity in the bank. A sensible first purchase leaves room to add as better returns show that its expanding business is becoming more profitable, not simply larger.
