# Home Buyer's Plan?



## HomeBuyer01 (May 24, 2011)

Hi everyone,

I'm a young, potential first time home buyer.

I can afford to make a 20% down payment on a house. To put down more money, should I also dip into my RSP using Home Buyer's Plan? On the one hand, I'm putting more money down, and getting a smaller mortgage -- all good. On the other hand, I'm eating into my retirement funds.

Any thoughts? Home Buyer's Plan -- worth it even if I can pay 20% down without it?

Thanks!


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## NotMe (Jan 10, 2011)

I don't know why you wouldn't. Take your 20% downpayment (cash, I assume), drop it into your rrsp (as cash or a 90 day GIC, not any other type) then withdraw it using the HBP. You get a nice tax deduction for moving some money about. You're not eating into your retirement funds at all.


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## HomeBuyer01 (May 24, 2011)

I already have my 20% down payment ready-to-go in non-registered accounts. The question is whether to withdraw from my RSP in addition to that, and beef up my down payment.


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## NotMe (Jan 10, 2011)

So if the question is will you make a better return on your rsp investments vs downpayment?

Need to know what your Rate of Return on your rrsp is vs what you'll save on interest. In my mind though I think you'll have a hard time beating paying down your mortgage.


I'd still liquidate those 20% non-registered, dump it in the rrsp and then withdraw it.

Another assumption I'm maknig is you have at least $15,000 set aside for closing, moving and renos.


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## I'm Howard (Oct 13, 2010)

The HBP for Toronto residants is totally ridiculous, $25k for a TO Condo means nothing, that same amount outside of TO goes much farther.

This plan has not been changed in years, it doe very little to help people get started, it needs to be at least $40K, but that won't happen, Flaherty has his indexed Pensions, probably close to $200k a year plus his wife's DB Governmnet Pension, He could give a damn about the people who don't have these beenfits starting out.

Pay off as much as possible, set up a line of credit for the same amount, that way in an emergency you have cash to fall back on.

RRSP's are Tax Deferral, you will be taxed on them and i would guess you will be in a higher bracket when you retire?

Young people are better off with a TFSA than an RRSP.


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## Homerhomer (Oct 18, 2010)

Yes, I would suggest withdrawing and putting down as much as possible, guaranteed savings on non deductible interest now is better than potential earnings far in the future.


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## realist (Apr 8, 2011)

I am in a similar situation. I personally have a relatively low risk tolerance so the idea of the guaranteed "return" of not paying the extra interest is very appealing to me. 

Notme makes a good point too - Depending on your tax situation and RRSP limits you might do very well to put some of that down payment into your RRSP to get the tax refund, and then withdraw it under the HBP. Make sure you understand the rules about how this works before you do it.


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## canadianbanks (Jun 5, 2009)

Do you think interest rates are going much higher soon? If yes, then you might consider bigger down payment. On the other hand if interest rates go higher even 1% this will deflate the housing bubble, so the value of the property you buy will go down.


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## clovis8 (Dec 7, 2010)

Didnt want to create new thread so I will highjack this one a little.

I am thinking of borrowing 4k from my RRSP for a downpayment. I know I only have to play back 1/15/year starting in the year after I borrow. Does this mean other RRSP contributions will count towards lowering my income or do all contributions until I pay back the 4k not count for lowering my income?


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## the-royal-mail (Dec 11, 2009)

I love the idea of moving the 20% DP into the RRSP to get a tax kickback - brilliant!

But that's not what the OP is asking. The OP wants to know if they should withdraw their existing RRSP $ to make an even bigger down payment.

I personally wouldn't do that. I have always treated RRSPs as untouchable. I need that money for retirement! If you use HBP you have to pay all that $ back into your RRSP over 10 years (IIRC). So in addition to the stress of continually wanting to "pay off" your house, you will have the added stress of having to pay back your RRSP.

A house is stressful and labour intensive enough without adding to it.

How about your other tier 1 and 2 savings. Are they well-established? You've done well to establish tier 4 but that will be gone as soon as you buy the house. And what about all the closing and other moving expenses?


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## NotMe (Jan 10, 2011)

@ Royal mail - I hear you but technically you don't HAVE to pay the money back. All that would happen is that 1/15 of the amount borrowed is added to your taxable income.

@ Clovis8 - How it works is you make your RRSP contributions each year per usual, and designate a certain amount (minimum and recommended amount is 1/15 of the amount borrowed) as part of your HBP payment which is not deducted but the rest is. So you make a $10,000 RSP contribution, you can only deduct it by $10,000 minus 1/15 of the amount borrowed.


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## the-royal-mail (Dec 11, 2009)

Thanks for the additional info, notme. That actually makes my point even further. If people are using their RRSPs to fund down payments, and choose not to repay their RRSPs, they won't have any cash saved for their retirement! I know a paid-off dwelling is a super thing going into retirement, but you also need cash.


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> I love the idea of moving the 20% DP into the RRSP to get a tax kickback - brilliant!
> 
> But that's not what the OP is asking. The OP wants to know if they should withdraw their existing RRSP $ to make an even bigger down payment.
> 
> [ ... ]


Hmmmm ... it is brilliant but was mentioned by the bank back in 199x when I bought my first house.

Of course, now you have to leave the 20% DP in for ninety days where in 199x, I could deposit today, withdraw tomorrow (with appropriate paperwork) and keep the tax deduction.

*sigh* ... the good, old days ... *grin*


As for the OP's question, another factor to consider is the "loss of opportunity and compounding" in the RRSP. While the HBP hasn't been repaid - the money is out of the "RRSP market" and in the "house market".


Cheers


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## Charlie (May 20, 2011)

If he has unused RRSP room, then the RRSP in and out is a no brainer. The money wasn't going to be compounding in there anyways --and if he does max out later he can top up by the HBP at any time -- so he's ahead by the tax refund today -- instead of some time in the future. (and as long as he's had greater then the amount he's going to take out in there beyond the hold period -- he can do the in and out right away. It's first in first out -- no exact matching of dollars.

As to whether he should take money from an RRSP to increase the DP -- that's the age old question. Do I contribute to my RRSP or pay down my mortgage?? Somebody writes an article on this every February. And the answer is always "it depends" Seems there are good reasons for both.


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