Interested in lending yourself your down payment?

Well, it’s February and that means (besides more cold and snow) it’s RRSP season! So what else would we talk about but Registered Retirement Savings Plans?

 

Don’t worry, I haven’t lost my mind – this still has to do with Real Estate. How does an RRSP have anything to do with home ownership? Well gather round and let me tell you how your RRSP might give you a great opportunity to supplement your down payment on a home, or to help a related person with a disability buy a qualifying home.

First off, I must qualify this post by saying I am offering neither legal nor accounting advice – I am simply introducing you to a program that you may wish to investigate further. In all cases, get advice from your own legal and accounting experts before you take the plunge.

So what is the Home Buyers’ Plan?

The long and short of it is that if you have an RRSP and you are a first time home buyer you may qualify to access up to $25,000 of your funds without incurring a withdrawal tax hit to go towards your purchase. The even better news is that a couple may combine to make a total of $50,000.

Using RRSP funds to purchase your first home isn’t for everyone, but it can help by lowering your monthly payments or even reducing the number of years you have to make payments. These are the possible benefits of using your own money.

Take note there are always cautions to be aware of and this situation is not the exception. When you use your RRSP funds in this manner you have 15 years to repay the money (through annual payments) with no penalty. However if you do not meet the annual repayment requirements, the unpaid annual amount will be added as taxable income for that year. No such thing as free money. So if you decide to explore this option to help you get into home ownership, you will need to make sure you have considered the extra annual repayment amounts in your plan.

Another consideration before you decide to use your RRSP is the loss of potential growth. Any money taken from your retirement fund will not be working to compound any potential interest. Before making a decision on whether you should use RRSP funds you have lots to think about and talking with an accountant first is always a good idea.

I have had many buyers who have taken advantage of the RRSP Home Buyers’ Plan. The program gave them the opportunity to get into the home they love. In their cases, after discussing their options with their accountants, they decided that this made the most sense for them.

I have also had other buyers who looked into the program and decided not to go that route. Everyone’s situation is different so get your own advice.

When used correctly this can be a great program and one that is definitely worth further investigation. If nothing else, it will give you a new appreciation for how down payments affect your monthly payments and the overall interest paid on a mortgage.

So that’s the ‘cole’s notes’ on the RRSP Home Buyers’ Plan. If the idea intrigues you visit the Canada Revenue Agency site >>> here <<< for full details on the program.

Tracey