This type of question goes through the minds of many Canadians who are buying a home for the first time. The RRSP Home Buyers' Plan allows qualified home buyers to use up to $25,000 (as of February 2009) of their RRSPs to purchase a home.

In order to qualify for the Home Buyers' Plan neither you nor your spouse/partner may have owned a home and lived in it as your principal residence in the last 5 years as of January 1st of the 4th year before the year of withdrawal (5 years approx).

There are other proposed qualifications for individuals that have previously participated in the Home Buyers' Plan and individuals who are purchasing a home for a related disabled person.

An overview of the Home Buyers' Plan

You and your spouse/partner can borrow up to $25,000 each from your RRSPs to purchase a home, as long as the funds are accessible.

For example, if you have a "locked-in" RRSP, or if your funds are in a Guaranteed Investment Certificate that does not mature for three years, you may not be able to access your funds. Furthermore, RRSP contributions within the last 90 days are not eligible for this plan.

If you are withdrawing funds from your RRSP to purchase a home, you must be registered as one of the owners of the property. Once the funds are withdrawn you must complete your purchase of the home by October 1st of the following year. The home must also be used as your principal residence within one year after the purchase.

If you comply with the rules of the Home Buyers' Plan then you will be able to withdraw money from your RRSP without it being subject to witholding tax. The money must be repaid to your RRSP over the following 15 years, beginning the second year after your withdrawal.

If your minimum repayment is not made, then the payment is taxed as income for the year it is due. The repayment of 1/15th of the amount withdrawn must be made by the RRSP contribution deadline of a given year.

For example, if you are paying your RRSP back for the 2008 taxation year, you have until the first 60 days of the year 2009 to make the minimum payment. You must contribute the minimum repayment back to your RRSP each year, but you can also repay the entire amount at any given time.  The loan must be repaid by the end of the year you turn 71 (rollover of RSP to RIF).

However, the repayments are not tax deductible like the original RRSP contributions; and they do not use up the RRSP contribution room.

Deciding whether to use the Home Buyers' Plan becomes a lifestyle choice. If you are certain that it is the right time to purchase a home, and you have no other alternative to borrow funds for your purchase, then either use the option, or consider saving for a few years.