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RRSP Home Buyers Plan

Surfbum84

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Feb 6, 2008
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Hey all.

I'm going to purchase a condo within the next few weeks. Is it worth it to use the RRSP Home Buyers plan to grab $20,000 more towards my down payment, or am I sacrificing a lot by doing this?

I know interest rates are at all time lows so should I just leave the RRSP alone and let them grow and have a smaller downpayment and subsequently higher carrying costs?

Thanks
 

Keebler Elf

The Original Elf
Aug 31, 2001
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RRSP's aren't giving great returns right now so it's probably worth using 'em for your down payment.
 

Numbers

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Jan 18, 2004
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It all depends on the RRSP investment you have, and your tolerance for risk. Money market type funds are low return right now. TD,s Cdn Equity is returning about 40% this year, and their Latin American fund is over 70%.

Borrowing from the RRSP will only give you a 3 year window before repayments are mandatory, so a cash flow benefit for 36 months.
 

kumamake

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Nov 4, 2002
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it depends on ur return on RRSP versus interest savings on mortgage with extra down payment.
and u have 2 years i think before u start paying back the monies ur borrowed from rrsp and i guess u have 15 years to pay it back.
 

duang

Active member
Apr 17, 2007
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Hey all.

I'm going to purchase a condo within the next few weeks. Is it worth it to use the RRSP Home Buyers plan to grab $20,000 more towards my down payment, or am I sacrificing a lot by doing this?

I know interest rates are at all time lows so should I just leave the RRSP alone and let them grow and have a smaller downpayment and subsequently higher carrying costs?

Thanks
> limit is $25K now
> money has to have been in at least 90 days
> if you don't need the HBP to make the purchase [i.e. it will just result in a lower mortgage] then you are simply trading the guaranteed mortgage interest savings vs. what you would have done with the money if you left it in your RSP. Given today's low mortgage rates, in most cases you might very well expect to do better with more in your RSP if you expect to garner decent gains [e.g. using equity investments]. However, if you would keep that HBP amount in your RSP in GIC's or such then you would be better taking the mortgage interest savings and use the HBP. Remember that the mortgage savings are guaranteed and are in after tax dollars while expected returns on your RSP are expected only and are before tax [albeit the taxation is probably decades down the road].
> you might want to use the HBP if it will help you avoid a high ratio mortgage [i.e. less than 20% down] and the resulting insurance cost or even just help you have a lower high ratio mortgage insurance cost by reaching one of the thresholds where the insurance rate changes [i.e. every 5% level up to to 20% down]

Hope that helps. Let me know if any of that is not clear. PM me if you want.

D.
 

duang

Active member
Apr 17, 2007
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RRSP's aren't giving great returns right now so it's probably worth using 'em for your down payment.
RRSP's are a kind of account: they have no kind of return at all. What you hold in your RSP determines your return.

It's absolutely true that returns are very low if you're using most fixed income products [GIC's, money market or government bonds] but if you were using other investments then your future expected returns might be much higher than the mortgage interest savings.

It comes down to what you expect your RSP investments to earn going forward vs. what you expect to save in mortgage interest.

D.
 

Surfbum84

New member
Feb 6, 2008
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Thanks for all of your help.

My RRSP's are all in equities due to the fact that I am young and I like taking risk. Based on what I read, I'm going to leave them where they are and just put a smaller downpayment towards the purchase as I don't wanna get rid of equities that Ive purchased at lower costs (I've made some substantial gains since the markets have "picked up" over the past 6 or so months)
 
May 22, 2008
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what duang said makes sense. i've always been very pro on the home buyers plan. at the end of the day. the money your saving on the interest of your mortgage will be worth it.
 
Why invest in RRSP's at all???

Your after tax dollars have purchased your rrsp to be invested into a home that you now will pay a mortgage on AND you have to pay the rrsp back as a loan. At a later date, you will withdraw that rrsp AGAIN and pay tax once more to the gov't.

Screwed no matter which way you go,,,
 
May 22, 2008
694
2
18
Your after tax dollars have purchased your rrsp to be invested into a home that you now will pay a mortgage on AND you have to pay the rrsp back as a loan. At a later date, you will withdraw that rrsp AGAIN and pay tax once more to the gov't.

Screwed no matter which way you go,,,
the idea is to reduce your taxes that you truely end up paying. if im making 6figures now...(now im throwing random numbers but im trying to portray the idea) im paying about 41-45% in income taxes...lets say i contribute and reduce my income to a lower bracket say 36%. that means i'll be getting a shit load of my money back and only paying 36% and not like 45%. say i retire...and i dont need much because everything should be paid off and really..its just random expenses to enjoy my retirement...i withdraw money out of my rrsp at a certain amount say about 40K a year which is good since u dont have a lot of expenses. i'll only pay about say 31 ish %. so at the end of the day you really pay about 31-36% on your income and not 41-45%. yes you'll have capital games and so on...but depending on what your investing in, you may only have to declare half and if your in a tax free savings u wont need to pay any at all. your money will also grow assuming and if your in a balance fund and kept your money in there a long time throughout your working days, chances are, it will grow as a economy should. so your money is making money for you. your not being screwed when u throw money in your rrsp. rrsp only dont make sense if your one of those people that invest the money 1 year...and live beyond your means and withdraw the money the following year.
 
May 22, 2008
694
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and i could be wrong...but when u initially withdraw your money for the home buyers plan...you dont get hit on your taxable income...that's what the plan is all about. is to be able to get additional funds to buy a house and not get hit by the tax man. though i would assume that you would get hit on income tax for capital games which isnt a big deal since its for your house.
 

duang

Active member
Apr 17, 2007
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Your after tax dollars have purchased your rrsp to be invested into a home that you now will pay a mortgage on AND you have to pay the rrsp back as a loan. At a later date, you will withdraw that rrsp AGAIN and pay tax once more to the gov't.

Screwed no matter which way you go,,,
Many [but not all] long term savers will benefit significantly from using RSP's. If you can save taxes in a high tax bracket now and compound those before tax savings for decades and then finally pay those taxes later [and possibly at a lower tax rate] then you will probably do very well.

In many cases it's as simple as: would you rather pay taxes now or pay decades later when you withdraw your RSP's?

I would suggest you get someone to look at your situation and explain to you whether it makes sense or not for you.

D.
 
Last edited:

CapitalGuy

New member
Mar 28, 2004
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Thanks for all of your help.

My RRSP's are all in equities due to the fact that I am young and I like taking risk. Based on what I read, I'm going to leave them where they are and just put a smaller downpayment towards the purchase as I don't wanna get rid of equities that Ive purchased at lower costs (I've made some substantial gains since the markets have "picked up" over the past 6 or so months)
I used the HBP to buy my first, house, over a decade ago now. It didn't work the way you are describing it though. I didn't actually "cash out" my existing RSP holdings. The plan allowed me to use all of the unused portion of my RRSP contributions for the past xx years via a 90-day government loan. It was as if, in that year, I contributed an extra $17K to my RRSP, thus getting a bigger tax refund. That tax refund was applied to my downpayment. In my case, the transaction had to take place in the spring, to line up with income tax filing dates.

So pretend you were able to contribute $5K a year but you only contributed $3K for the past 10 years. You have $20K that the gov't loans you for 90 days. You deposit that $20K in your RRSP account (I made $350 on that part of the transaction), then withdraw it after the 90 days and give it back to the gov't. You can now use that $20K to earn a larger income tax refund, which is applied to your down payment.

I don't know if that program is still in existence, or if the HBP is now simply a straight withdrawl of existing RSP holdings. If that's the case, you have to crunch the numbers to see what you would be losing in terms of gains, over the time frame it would take you to repay the loan. You might make more money in the market than by investing in a home. But, it might help people who otherwise could not afford a house, buy one. I likely would not have withdrawn from my RSP's. Others might. I think that if you are not risk adverse, as you say, you're better off skipping the program.
 
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