# Suggestions re: RRSP loan



## Harper77 (Nov 11, 2009)

Hi all.
Wife and I are wanting to purchase first home - live with inlaws presently.

We have approx 4K in RRSP and another 1500 in savings. 

We were thinking of doing this: get an RRSP loan for 10K - use the RRSP Homebuyers thing as our deposit. Take the refund we get on our tax as well as money we will save up to get rid of the RRSP loan - does this make sense?

How easy do banks give RRSP loans? I have never done this before so pardon if I sound like an idiot.


----------



## Rickson9 (Apr 9, 2009)

No offense, but it would seem to be a bad idea to purchase a home in your current financial situation.


----------



## Rickson9 (Apr 9, 2009)

No offense, but it would seem to be a bad idea to purchase a home in your current financial situation.


----------



## Harper77 (Nov 11, 2009)

Rickson9 said:


> No offense, but it would seem to be a bad idea to purchase a home in your current financial situation.


Why would that be? 

We are only looking at the price range of 160-170K. Its the deposit we are trying to get - everything else is fine.


----------



## Spidey (May 11, 2009)

I agree. You probably will have to save for at least 2 more years. If you are both working I would suggest trying to put away most of one partner's salary.


----------



## Harper77 (Nov 11, 2009)

Spidey said:


> I agree. You probably will have to save for at least 2 more years. If you are both working I would suggest trying to put away most of one partner's salary.


Whats wrong with I suggested? It gets us in the housing game alot faster than trying to scratch and save, plus why rent when a mtge is cheaper anyways.


----------



## Spidey (May 11, 2009)

Harper77 said:


> Why would that be?
> 
> We are only looking at the price range of 160-170K. Its the deposit we are trying to get - everything else is fine.



You can't take a loan and then have the proceeds considered as equity. Your net situation has not changed. Banks look at the total amount of debt that you have owing. You have to save more of a down payment.


----------



## Harper77 (Nov 11, 2009)

Spidey said:


> You can't take a loan and then have the proceeds considered as equity. Your net situation has not changed. Banks look at the total amount of debt that you have owing. You have to save more of a down payment.


But I can get an RRSP loan, can I not?
And then use those RRSP's as my downpymt under the Home Buyers Plan.


----------



## leslie (May 25, 2009)

Banks restrict the $$ they will lend you for good reasons.... They only lend what they think you can support with your income. There is really no reason for you to presume their reasoning is wrong. Which is what you are doing by trying to increase the amount of your total debt to do this deal.

The loan to your RRSP should be considered just as (or even more so) onerous than a loan to the bank. Consider it a loan to the government, because when you fail to make proper payment they have the power to come down hard. Do not shrug off this part of your debt " because I am borrowing my own money".

Your argument really rests on the phrase "money we will save up". You 'save' money BEFORE a purchase. You pay interest and principal to pay down debt AFTER a purchase. You have not been successful (two incomes for how long?) saving money to-date, so why do you expect things to change?

You still do not have an emergency fund, much less a fund for the real-estate purchases you will make as soon as you buy ppty. 

Wait and save. Change your thinking from "getting into the game" toward "setting up solid financial footings".


----------



## HaroldCrump (Jun 10, 2009)

Harper77 said:


> Whats wrong with I suggested? It gets us in the housing game alot faster than trying to scratch and save, plus why rent when a mtge is cheaper anyways.


Cheaper from a monthly cash-flow perspective only, maybe.
The RRSP HBP is like a loan against your own RRSP.
You are taking on 3 types of loans, if you do this:
- RRSP loan of 10K
- The HBP loan against your own RRSP, which you need to "pay back" to your RRSP in future
- The mortgage itself

If you hate living with in-laws (and I fully understand), renting for a couple of years is probably a better option for you.


----------



## Oldroe (Sep 18, 2009)

You need to add more info. Combined income and any other debt how secure your employment is.

So far you are drawing very thin, work for a stronger position.


----------



## Harper77 (Nov 11, 2009)

HaroldCrump said:


> Cheaper from a monthly cash-flow perspective only, maybe.
> The RRSP HBP is like a loan against your own RRSP.
> You are taking on 3 types of loans, if you do this:
> - RRSP loan of 10K
> ...


But is what I am saying above though - can it be done?


----------



## Rickson9 (Apr 9, 2009)

Harper77 said:


> But is what I am saying above though - can it be done?


Ask a bank. They will have people that can advise you. Expect that it cannot be done.


----------



## MoneyGal (Apr 24, 2009)

The issue is not "can I do this?" as in, is it technically possible? The issue is whether you will find a lender who is willing to take the default risk. And, like others have said, we don't know enough about your personal situation to answer that (plus...we aren't banks!). 

Like Rickson said (I think in the other thread), I'd expect a "no" if you posed this question to your bank.


----------



## Shayne (Apr 3, 2009)

Harper77 said:


> I posted this earlier but I think in the wrong spot.
> 
> Wife and I are wanting to purchase first home - live with inlaws presently.
> 
> ...


As long your debt servicing ratios are in line and you have adequate credit it will be easy to get a loan for an RRSP. 

Get the loan and have the bank put it in a savings account until you can "decide what to do with it" and you will be fine. 

I would have a broker assist you with this as you will have to ensure that the loan does not screw up your ratios to the point of not being approved. There is also an issue of timing. The cash has to sit in your RRSP for 89 or 90 days. PM me if you have any further questions.


----------



## Cal (Jun 17, 2009)

We have approx 4K in RRSP and another 1500 in savings.


Dude...you guys need to save alot more! Do whatever financing that you want, or whatever someone is willing to lend you. You still need to save alot more before you consider a home purchase.

How long did it take to save the $4K plus $1500? 1 month? 3 months....then maybe in a year or two consider buying a home. (I think the average CDN home is $420K) but keep saving up.

If it took you longer to save up the money...then keep saving, and don't think of buying RE at this point.

Read the above messages...leslie had good advice...get good financial stability first.

We have no agenda to keep you out of the RE market. You have received good advice. Save, Save, Save.


----------



## Cal (Jun 17, 2009)

And while I am on it:

Real Estate (RE) could very well be the largest purchase that you will ever make. It is not a game. (As many Americans can attest)

Also...I am not against getting a loan to finance your RRSP's, however I am not in favour or losing the compound interest of withdrawing them to make a down payment on a home. If I needed to do that I would simply wait longer and save more for my downpayment.


----------



## HaroldCrump (Jun 10, 2009)

Harper77 said:


> But is what I am saying above though - can it be done?


_Can?_ - Maybe.
_Should_ - probably not.
You are taking on huge amounts of risk by doing this.
What's wrong with renting an apartment for a few years?
In the end, it is your personal call.
Living with your in-laws or renting may be so intolerable for you that this is something you HAVE to do for yourself and your family.
In that case, the numbers math and financial viability may be secondary for you.
Sometimes we may have to do things for emotional reasons that may not be the best from financial perspective.
It's up to you.

Last note: as someone else said, a bank may not let you do it the way you describe.
You may want to break this across a couple of years.
i.e. take the 10K RRSP loan now and put it into RRSP.
Apply the tax credit towards the loan and aggressively pay the rest as much as you can.
Next year use the HBP as down payment.
Doing all 3 at the same time will be a red flag for most lenders/banks.


----------



## leslie (May 25, 2009)

OK. All 5 contributors think this is a terrible idea. Yet your response is 'but I'm going to do it anyway. Can it be done?' 

How exactly does your 'other half' feel about this? It is her (I bet) life you will be mucking up as well as your own. Her parents are trying hard to give you a solid start by letting you live with them. Is this the way you pay them back?

Surely you can see that assuming risk MUST be acceptable by BOTH partners.


----------



## Harper77 (Nov 11, 2009)

Shayne said:


> As long your debt servicing ratios are in line and you have adequate credit it will be easy to get a loan for an RRSP.
> 
> Get the loan and have the bank put it in a savings account until you can "decide what to do with it" and you will be fine.
> 
> I would have a broker assist you with this as you will have to ensure that the loan does not screw up your ratios to the point of not being approved. There is also an issue of timing. The cash has to sit in your RRSP for 89 or 90 days. PM me if you have any further questions.


The reason why I ask this is because someone told me thats the fastest way to get money for a downpymt. We really only need 10K. 
I understand that it has to be in RRSP for 90 days to be considered for Homebuyers Program - but the refund I get back from my tax return from purchasing RRSP's as well as the money we have saved up thusfar can be thrown right on the RRSP loan.


----------



## Harper77 (Nov 11, 2009)

The reason why I ask this is because someone told me thats the fastest way to get money for a downpymt. We really only need 10K. 
I understand that it has to be in RRSP for 90 days to be considered for Homebuyers Program - but the refund I get back from my tax return from purchasing RRSP's as well as the money we have saved up thusfar can be thrown right on the RRSP loan.

If this is not a viable option, what/where should we put our money each month we are saving? Right now its just going into a savings account. 

We are simple ppl and our house price range we want is between 160-170K. We have been approved for alot more. But we live simply, so we just want the 5% for the above price range and would really like to have our own place by the summer.


----------



## HaroldCrump (Jun 10, 2009)

Harper77 said:


> We are simple ppl and our house price range we want is between 160-170K. We have been approved for alot more. But we live simply, so we just want the 5% for the above price range and would really like to have our own place by the summer.


Summer is 8 months away.
You didn't say what your take-home household income is and what % you are saving (not that I'm asking).
You already have $1500 cash savings so you need another $8,500.
That's a little over $1,000 a month until summer.
Can you not aggressively save for the next 8 months to achieve this instead of doing all these manouevres?
Cut all non essential expenses like eating out, new clothes, phone bills, cable TV, etc.
Usually cable TV, cell phone and high speed internet account for at least a couple hundred $$ each month.


----------



## Harper77 (Nov 11, 2009)

HaroldCrump said:


> Summer is 8 months away.
> You didn't say what your take-home household income is and what % you are saving (not that I'm asking).
> You already have $1500 cash savings so you need another $8,500.
> That's a little over $1,000 a month until summer.
> ...


Yeah - we have 3K in RRSP's that will go towards it, along with 1500 cash saved in the bank. We just paid off a loan and that is off our back and now we can aggresively save!
Should I just be throwing the money into the savings account or where should it go, considering we are shooting for the summer to purchase - should it go directly to RRSPs and the savings on the income tax put to the deposit also, istead of just a savings where I get nothing?


----------



## DavidJD (Sep 27, 2009)

As a former realtor I would recommend that you look into all the costs of home ownership. 

When you look at houses you will first insist on looking in your price range. The ones at the extreme price limit will show better and seduce you into inching up your price - to the point that you WILL be house poor by payments alone. This is very common as this purchase is mainly emotional. 

The sad part is when the reality of associated homeowner costs (too numerous to list here) comes to light you will regret your purchase - this puts tremendous strain on a relationship. Feeling trapped...can't see an end to the debt... For realtors this makes another sale(s) but for you it takes years to recover financially and emotionally. 

All of this can be minimized or elimated by saving a decent down payment while doing research in home financing AND actual properties. 
Good luck.


----------



## cannon_fodder (Apr 3, 2009)

Saving for the downpayment sometimes is the easy part - the total cost of home ownership often overwhelms those that are smitten with the idea. Don't forget about the closing costs just to get into the home - you should make sure you also have a lawyer draw up a will and power of attorney for each of you. I think about $2-$3k is a comfortable amount for closing costs but others may have a more accurate assessment.

First, get an idea of the total cost of home ownership e.g. 

1. mortgage payments
2. property taxes
3. home maintenance
4. house insurance
5. life insurance (after all, you now have a need to protect either spouse to be able to handle this debt load)
6. utilities
7. furnishings (you MAY need some or all of a bedroom set, dining table, living room furniture, lamps, curtains, appliances, TV, stereo, etc.)
8. tools to maintain the property such as lawn mower, ladder, drill, hammer, etc. 

Now - divert that entire amount from your current income minus any payments you provide to the in-laws for staying there. Do this month after month after month - this gives you an idea of how much it will cost to own a home with the safety net of not actually committing to all of these bills.

This is an effective and worthwhile way to establish fiscal responsibility. The money that you save can of course go for your downpayment but more importantly it teaches you how it will be to live a life that requires so much more money than you thought it would. 

This isn't a diet - this is a lifestyle change. You need to be prepared to be able to do this for around 20 years not just for a few months.

The money can go into a TFSA for both of you. In less than 2 months you will both have the room for $10k each. Save $2500 per month and you will hit your limit in 8 months which, coincidentally, is the summer. Make sure whatever TFSA you go with will allow you to withdraw the money easily when you need it.

If you want to, you can then withdraw the money and put it into an RRSP as part of the HBP. But, as someone said, you will need to wait before you can withdraw it for the downpayment towards the house.

Just off the top of my head, I think $2,000 per month for all of the aforementioned costs should cover it without being overkill. Of course, in 2 or 3 years, the interest rates should be significantly higher...


----------



## specialk (Jul 14, 2009)

cannon_fodder said:


> Saving for the downpayment sometimes is the easy part - the total cost of home ownership often overwhelms those that are smitten with the idea. Don't forget about the closing costs just to get into the home - you should make sure you also have a lawyer draw up a will and power of attorney for each of you. I think about $2-$3k is a comfortable amount for closing costs but others may have a more accurate assessment.
> 
> First, get an idea of the total cost of home ownership e.g.
> 
> ...


This is all awesome advice. More people need to consider these things before getting "house fever". I always tell people that renting vs buying is a rare situation where you DO want to compare apples to oranges. Most people compare for example, a 3 bedroom 1 bath house ownership vs a 3 bedroom 1 bath home renting and try to figure out what's cheaper that way. However, the real comparison should be a 3 bedroom 1 bath house ownership vs a mega cheap @!*[email protected] hole basement suite for a couple years at about 700-800 per month, plus not worrying about maintenance etc.

On a side note, can you or someone else please explain to me what the long term benefit would be to drawing from your TFSA to put that into an RRSP for the HBP? Seems to me that the long term net result is identical anyway, but maybe I am missing something (well, I guess I can see a point to it maybe if we are talking higher tax brackets). Either way, I am confused.


----------



## Oldroe (Sep 18, 2009)

Every RE agent will run a few #'s and say you are good for 200K. These are cash strapped living for your mortgage debt.

What ever your agent says back it up 25-30% and you will be comfortable.


----------



## cannon_fodder (Apr 3, 2009)

specialk said:


> This is all awesome advice. More people need to consider these things before getting "house fever". I always tell people that renting vs buying is a rare situation where you DO want to compare apples to oranges. Most people compare for example, a 3 bedroom 1 bath house ownership vs a 3 bedroom 1 bath home renting and try to figure out what's cheaper that way. However, the real comparison should be a 3 bedroom 1 bath house ownership vs a mega cheap @!*[email protected] hole basement suite for a couple years at about 700-800 per month, plus not worrying about maintenance etc.
> 
> On a side note, can you or someone else please explain to me what the long term benefit would be to drawing from your TFSA to put that into an RRSP for the HBP? Seems to me that the long term net result is identical anyway, but maybe I am missing something (well, I guess I can see a point to it maybe if we are talking higher tax brackets). Either way, I am confused.


There may be justification in this approach if you receive a tax refund large enough to supplement your downpayment so as to avoid the CMHC "penalty" of insurance and higher interest rates. Or, it could make the difference between getting a mortgage or none at all if your downpayment is not large enough without the refund.


----------

