Salmon Arm Shuswap real estate purchase option if you have not yet exercised and qualified...."Experts back taking cash from RRSP to buy a home."

The Home Buyers Plan introduced by then-federal finance minister Don Mazankowski in 1992 was supposed to be a one-year program. But was such a popular way to start building home equity that it became a permanent fixture.

According to Canada Mortgage and Housing Corporation figures, 1.3 million Canadians used the plan to withdraw $1.3 billion from their registered retirement savings plans from 1992 to 2002.

Author Gordon Pape warns that for some people the plan could be "a financial time bomb that could severely compromise their retirement income," but he and most experts agree that for most people the plan presents a great opportunity.

"I think it makes total sense," said Jim Yih, an Edmonton financial planner, author and speaker. "Especially with rising house prices, anything you can do to get into the house market makes sense. I'm a big fan of owning your own home versus renting. I think ownership of a home teaches you so much about the principles of money and wealth."

With the housing market mired in a recession during the early 1990s, the Canadian Real Estate Association lobbied the federal government to let people temporarily use some of their retirement funds to purchase a home.

The result was the Home Buyers Plan, a one-year opportunity for every Canadian to withdraw up to $20,000 from his or her RRSP towards the purchase of a home, and to be repaid over 15 years.

Since then, the program was first extended then made permanent with modifications. It's now available if neither a person nor his or her spouse or common-law partner owned a home and lived in it as a principal residence in the period beginning Jan. 1 of the fourth calendar year preceding the year of the withdrawal.

There are other restrictions. Money deposited into an RRSP cannot be withdrawn under the plan within 89 days. And at least one-15th of the amount withdrawn must be repaid each of the following 15 years, with any shortfall being taxed as income.

To get the HBP withdrawal, you must make sure you have money in your RRSP that it isn't locked into guaranteed investment certificates. Some institutions let you withdraw locked-in amounts if you take out the mortgage with their firm or if you pay a penalty.

The next consideration is weighing the loss of RRSP growth against the savings in mortgage interest plus appreciation in the value of the house. You may be giving up 10 or 15 per cent RRSP returns to save five or six per cent of mortgage costs on the HBP withdrawal amount, with the difference more than likely to be offset by gains in the value of the house -- but not always. Generally, the older you are, the less you might lose in RRSP growth.

"It's still going to be something that appreciates in value, whether it's real estate, a stock or a mutual fund," said Yih. "There are times when real estate exceeds stock markets and times when stock markets exceed real estate -- just keep those in balance.

"If young people have $20,000 for a down payment for a house and they have RRSP contribution room, I tell them they might as well make the RRSP contribution first, and then use it for the home (after waiting 90 days)," said Yih. "You put in $20,000, get a 32 per-cent deduction, or whatever the amount is. You now have an extra $6,000 you wouldn't have had in the first place. You use that towards the down payment and take the $20,000 out of the RRSP."

(prepared by Ray Turchansky, For CanWest News Service/Vancouver Sun)