# New to forum, need some direction



## bkcmf (Apr 7, 2012)

aa


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## MoneyGal (Apr 24, 2009)

What's the interest rate on the student loans? 

What's your rationale for having ANY money in non-registered funds -- never mind a monthly allocation of nearly 7% of take-home income -- when you have (1) a relatively high marginal tax rate, (2) existing non-deductible debt, and (3) debt with tax-preferred interest (the student loan) which in any case likely has a higher interest rate than the rate you are earning on the non-reg funds? 

Put "learning about the stock market" aside until you have a much clearer picture of why you are doing what you are doing, and some defensible rationale (I don't mean you need to defend it to us, I do mean you have to have some well-thought out and preferably evidence-based rationale) for your actions.


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## MoneyGal (Apr 24, 2009)

p.s. You know that feeling you are referring to when you say, "remind me never to buy new again"? KEEP THAT REGRET FRONT AND CENTRE when you are shopping for houses and being upsold on wedding "stuff."


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## Spudd (Oct 11, 2011)

You should put as much into your TFSA as possible. You can withdraw from the TFSA with no penalty, so it's a perfect place to stockpile money for short term goals such as your wedding and house. 

Secondly, you're spending $2400 a month while living at home? I hope most of that is going to debt repayment. If not, you need to rein in your spending.


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

Hi there,

I'm going to be blunt on this one.

This doesn't sound like a solid financial foundation for buying a house and getting married. I think you need more time and money to accomplish those goals.

The first thing is to stop referring to real estate as a "home" - it's a house, a structure, a roof, a money maker to RE agents etc. And there is no need for you to rush in to buy. This is a terrible time to buy a house. Why can't you start with an apartment?

Consider the cost. A good goal for the DP that many here will recommend is 20%. So even if you buy a "modest" (lol) $300K house that will be $60K in DP. Then there will be closing, moving and legal costs. These are significant and are needed in addition to the DP. So you'll need to save $70K before even setting foot in the place.

How about emergency funds? Any thought to that?

How about wedding costs? Any thought to that?

Honeymoon?

Furniture, lawn mower, tools etc for the new house?

Remember you must also pay off your debts ($13K or so) and address all these expenses BEFORE buying a house.

Then once you buy the house you will have much higher monthly expenses such as TAXES, repairs and much more.

And please stop paying $120/yr for a credit card. Suggest you immediately cancel and replace this with a no-fee alternative.

Lots of financial work to do here and it will take you much longer than a year IMO. I suggest putting in some forecasts into a simple excel sheet and working out a plan to address the above.

My opinion.


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## steve41 (Apr 18, 2009)

I will fire off a cash flow, but I need your ages. Also, spouse's RRSP, salary, etc.


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## bkcmf (Apr 7, 2012)

MoneyGal said:


> What's the interest rate on the student loans?
> 
> What's your rationale for having ANY money in non-registered funds -- never mind a monthly allocation of nearly 7% of take-home income -- when you have (1) a relatively high marginal tax rate, (2) existing non-deductible debt, and (3) debt with tax-preferred interest (the student loan) which in any case likely has a higher interest rate than the rate you are earning on the non-reg funds?


student loan OSAP is at 5.5%
and you got me here, there really isn't any reason. i think my rationale was i wanted separate savings buckets (downpayment/emergency fund). so i just needed a place to stash money, and a >0 interest rate.



Spudd said:


> You should put as much into your TFSA as possible. You can withdraw from the TFSA with no penalty, so it's a perfect place to stockpile money for short term goals such as your wedding and house. Secondly, you're spending $2400 a month while living at home? I hope most of that is going to debt repayment. If not, you need to rein in your spending.


yup debt repayment, cut those two loans down quite a bit over the last few months.
leaning towards redirecting the money going in non-registered savings to TFSA.



the-royal-mail said:


> I'm going to be blunt on this one.


blunt is what i need



the-royal-mail said:


> The first thing is to stop referring to real estate as a "home" - it's a house, a structure, a roof, a money maker to RE agents etc. And there is no need for you to rush in to buy. This is a terrible time to buy a house. Why can't you start with an apartment?
> Consider the cost. A good goal for the DP that many here will recommend is 20%. So even if you buy a "modest" (lol) $300K house that will be $60K in DP. Then there will be closing, moving and legal costs. These are significant and are needed in addition to the DP. So you'll need to save $70K before even setting foot in the place.


i'll get into the realestate bit shortly i think considering i should focus on reshuffling funds around and make sure i am stashing away cash in the place. i still intend on buying a place whether it be in a year, or two or three, so i will need a good placeholder for downpayment cash (RRSP?)



the-royal-mail said:


> How about emergency funds? Any thought to that?
> How about wedding costs? Any thought to that?
> Honeymoon?
> And please stop paying $120/yr for a credit card. Suggest you immediately cancel and replace this with a no-fee alternative.


TFSA will suffice as emergency fund
capped myself at $10k for wedding, (working budget of 8k, overflow room 2k). will get assistance from parents on this one.
honeymoon isn't a priority, me n fiance are in agreement on this. have a bunch of rewards points that can be used towards this as well.

CC was only because i do quite a bit of travelling for work, so i figured why not pile up the rewards with the aeroplan card. plus i actually redeem points for trips once in a while. once the travel bug has subsided, you bet i'll be switching to the smartcash card.



steve41 said:


> I will fire off a cash flow, but I need your ages. Also, spouse's RRSP, salary, etc.


appreciate it.
25 and 24 yrs of age
i bring 3400 after taxes. she brings 3100 after taxes. (appx) we havent merged our finances yet.
we both have minimal amounts in the RRSP, $2500 combined. this would have to change i think as i believe this is a good place to save for downpayment and bring down our tax rates (?)

fixed monthly expenses for myself:
$300 to car payment
$200 to car insurance (will drop this year)
$300 to OSAP payment
$200 ish for all our rogers services (i help out at home)
$1000 towards savings accounts
rest is in chequing/spent (making dramatic improvements in budgets/spending less out/etc)

fixed monthly expenses for her:
$200 for car insurance
$50 ish for cell phone

keep in coming folks. thanks.


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## Young&Ambitious (Aug 11, 2010)

Don't use a RRSP for a down payment. If you had substantial RRSP savings there could potentially be an argument for it, but not for you guys who essentially have nothing saved for retirement. So that being said, I would recommend contributing monthly to your RRSP's (even if it's only $100 a month) to get your nest eggs started.


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## MoneyGal (Apr 24, 2009)

I'm going to disagree on this point. They will get a relatively decent tax break for contributing, and they'll be forced (essentially) to pay it back. Use the RRSP "bucket" for saving your downpayment to the $40K ($20K x 2) limit. Don't think about these as "retirement" funds, just as a tax-efficient way to save for a downpayment -- you get a tax discount equivalent to your marginal tax rate for every dollar contributed.


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## Young&Ambitious (Aug 11, 2010)

I can't help but mentally think of the opportunity loss of retirement savings during the Homebuyer's repayment time. With a mortgage and the added housing expenses, it'll be difficult to put aside a monthly payment that will reach the same future value amount as by not tapping into the RRSP. Inititally all their eggs will be in one basket and later on, they'll be playing catch up.


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## MoneyGal (Apr 24, 2009)

It's a really interesting discussion. This is what "financial planning" is about. 

When you say the opportunity loss during the HBP repayment, you are talking about the foregone investment return. But what rate of return are you forecasting? And what interest rate are you expecting on the mortgage? Are you taking into account the possibility of not requiring CMHC insurance if there is a larger downpayment? Are you comparing the PV of the (future) foregone investment return compared to the 31% discount on every dollar available if the OP uses the HBP? What about the faster paydown of a smaller mortage, compared to a mortgage with no HBP downpayment? 

Yes, it may be that the OP's total RRSP is higher if he/she does not withdraw from the RSP to take advantage of the HBP. But you should really be looking at total wealth, not just (one-dimensionally) RRSP value. 

I have not modelled this specific scenario - I leave that to Steve41 - but as a general rule in modelling financial scenarios, you would not weight an expected value (the foregone expected investment return) equally to a guaranteed return (the tax discount on RRSP contributions is very close to a guaranteed return) - as they are not subject to the same amount of risk. Ideally you will choose the option which presents the greatest wealth at the lowest risk. This is the _lex parsimoniae _approach, also known as the law of parsimony: take the path with the surest, shortest route to your goal.


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## londoncalling (Sep 17, 2011)

tough to beat a 31% discount...


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

But it's not a discount. What people often forget in these discussions is that the money must be repaid with after tax money later. Whatever you want to call it, it's a shell game that was devised by the govt to further inflate housing prices. Sooner or later, taxes have to be paid on that money. For someone in the first few years of a house, paying all the mortgage, interest, taxes, maintenance and other expenses PLUS the repayment I believe will be quite challenging. At the end of it all you will have spent every penny on a house, will have still paid tax on the income used to repay HBP and you will still have nothing for retirement.

In the OP's case, as I said above I do not think they have enough time and money to be jumping into a house purchase at this point. More time is needed to save a proper DP, in cash and then the other expenses as I outlined. OP seems to be trying to rush this.


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## MoneyGal (Apr 24, 2009)

TRM, I don't think you understand how the HBP works. Or how RRSPs work. Or how time works. :02.47-tranquillity:


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## Toronto.gal (Jan 8, 2010)

MoneyGal said:


> I'm going to disagree on this point. They will get a relatively decent tax break for contributing, and they'll be forced (essentially) to pay it back. Use the RRSP "bucket" for saving your downpayment to the $40K ($20K x 2) limit. Don't think about these as "retirement" funds, just as a tax-efficient way to save for a downpayment -- you get a tax discount equivalent to your marginal tax rate for every dollar contributed.


I agree as well, except the limit was increased by $5K, so it's $25K x 2.

Borrowing money [even if it's your own], gives TRM *H*igh *B*lood *P*ressure. 

The purpose/strategy of an HBP, is to help people become homeowners [sooner], not at all a scheme to make you pay more taxes, even when it's true, as you mentioned, that you can't tax-deduct your repayments. However, for a young person there would be plenty of time to make up the withdrawal. Also, consider that while you would not get any investment return under the RRSP for the amounts withdrawn, the return could be earned in the property itself.

And now with the TFSA in place, one might eventually be able to pay all, or a portion of the repayments with tax-free returns!


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## Spudd (Oct 11, 2011)

I agree with using the HBP. The piece about not being able to afford to pay it back seems like a red herring to me. When we bought our first house we were extremely close to the wire, but the repayment required is only 1/15 per year. We never had a problem with repayments. Maybe I consider the "wire" to be lower than other people might, but really, you need to just make sure it's in your budget to manage the HBP repayments as well as the house payments & expenses.


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## MoneyGal (Apr 24, 2009)

You can't deduct your repayments because you deducted your payments. :tongue-new: 

Also, as I've said eleventy times, if, for any reason, your MTR during repayment is lower than during contribution, you are practicing a form of tax arbitrage that could outweigh the (potential) investment return. 

Even if your MTR is the same during repayment as it was during contributions, you're still benefiting from an interest-free loan paid with income earned in the future, rendering the present value of the tax due less than the tax paid at contribution. Because that is actually how time works.


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## Toronto.gal (Jan 8, 2010)

MoneyGal said:


> You can't deduct your repayments because you deducted your payments. :tongue-new:


Exactly, but I think he means that you don't get any tax-breaks as a result, hence the tax-scheme!


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## Toronto.gal (Jan 8, 2010)

Spudd said:


> but the repayment required is only 1/15 per year. We never had a problem with repayments.


Indeed the repayment plan is doable; not only that, but it does not start until the 2nd calendar year following the year in which withdrawals were made.


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## dogcom (May 23, 2009)

Agree with much that has been said here and will add don't be in a rush to buy a house at this point and instead save all you can for that down payment. 

I think over the next few years there will be a great buying opportunity to get into more then just a dumb *** condo, so don't rush to achieve the house buying goal. Instead be ready, be pre-approved and get the best deal you can. You won't call the bottom in the house market but you can certainly do better then todays prices I would think over the next few years.


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## Young&Ambitious (Aug 11, 2010)

Alright I'm intrigued. I've starting a spreadsheet to do the analysis but the info I'm missing is the house purchase price...OP?


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## MoneyGal (Apr 24, 2009)

:encouragement: Ideally, you would assign differing probabilities to the variables you are modelling. But Excel is what we call the "brute force" method; you are somewhat limited in what you can do.


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## bkcmf (Apr 7, 2012)

Young&Ambitious said:


> Alright I'm intrigued. I've starting a spreadsheet to do the analysis but the info I'm missing is the house purchase price...OP?


Ive seen solid starters pop up for 300-350k range in the few areas we are considering. They dont last long either. 

Lets say 325k?

Appreciate this. Cant wait to see numbers. 

To note: i can continue living at home until we've saved up enough. In a years time we'll just start looking with better focus. didnt mean i want to move in july 2013. 

Good suggest to get pre approved. Ill look up requirements for that.


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## Sampson (Apr 3, 2009)

MoneyGal said:


> But Excel is what we call the "brute force" method; you are somewhat limited in what you can do.


You can still do Monte Carlo simulations using Excel right? Using the "At Risk" add-in application.


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## MoneyGal (Apr 24, 2009)

Yes, but at its heart MC is still a statistical approach, not probabilistic.


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## Young&Ambitious (Aug 11, 2010)

Ok so I didn't do any probabilities, I'm no whiz here! Although how do I upload an excel file? In the attachments browser I didn't see excel as an option?!

Regardless my options & asset results at year 16 were:

Scenario A) Use HBP. Use RRSP deduction for general spending. Net result $69,914.61
Scenario B) Rent yr 0 & Invest funds in side RRSP. Use RRSP deduction towards mortgage in y 1. Net result $180,341.55
Scenario C) Use HBP. Use RRSP deduction for mortgage payment. Net result $244,681.80
Scenario D) Rent & Invest funds inside RRSP. Use RRSP deduction to do another one time contribution to RRSP. Net result $220,465.75

Included in those figures (as applicable) is:
- mortgage interest savings resulting from home buyers plan for the downpayment and/or use of applying the rrsp deduction received from the 1st rrsp contribution, 
- the RRSP plus growth @ 8%, 
- CMHC interest savings (difference between the larger downpayment made able by the HBP versus not using the HBP and doing a 5% downpayment), and 
- house principal (assume no appreciation).

Some general notes: Mortgage 25 years assumed, calculated at 4% (long term is unlikely) with monthly payments. No inflation included nor appreciation on house.

My takeaway is that, assuming that renting versus monthly home carrying costs are the same, that one would be about the same off. Note that Scenarios includes the portion of one's mortgage that goes towards principal. So I think the big takeaway in this scenario (assuming no market appreciation, market crashes, increases in mortgage rates beyond the 4% used here) for this couple and other people looking at similar situations is comparing the monthly carrying costs of owning versing renting.


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## Sherlock (Apr 18, 2010)

mbk.2k3 said:


> $300 to OSAP payment
> $200 ish for all our rogers services (i help out at home)


Ouch!

I pay $25/month for my cell phone, and $40/month for my internet. I have no cable. What do you spend $200/month on? I would ditch Rogers for internet and look at Techsavvy (300gb/month for $35). I would ditch Rogers for cell phone and go with Wind Mobile or Mobilicity ($40/month for unlimited talk, text, and data). I would ditch Rogers for cable and get an antenna (all Toronto channels for free) and Netflix for movies ($10/month).

Also why are you paying $300 for OSAP, you should be paying that off much more aggressively. You should at least double that to get OSAP done with as soon as possible, because it makes no sense to have savings earning 1.4% when you're paying 5% interest on OSAP.

I would also echo others' comments that you shouldn't buy a house now (many economists predict a housing crash soon so if you wait a few years you could save tens of thousands of dollars) but if you ignore my advice and buy a house then try to get $25k in your rrsp and withdraw that to buy a house (it'll be 50k for you and your wife combined) as that is an easy way to get a higher downpayment.


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## Sherlock (Apr 18, 2010)

Four Pillars said:


> Unfortunately, lack of knowledge does not prevent TRM from dishing out copious amounts of advice on topics he knows nothing about.


I think these kinds of attacks do not contribute to this forum in a positive way. Just because your views differ from someone else's doesn't mean that he's wrong. It's the wide diversity of views that makes forums like this one a great place to get informed. Debating is good for the forum but personal attacks are not.


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## bkcmf (Apr 7, 2012)

Sherlock said:


> Ouch!
> 
> I pay $25/month for my cell phone, and $40/month for my internet. I have no cable. What do you spend $200/month on? I would ditch Rogers for internet and look at Techsavvy (300gb/month for $35). I would ditch Rogers for cell phone and go with Wind Mobile or Mobilicity ($40/month for unlimited talk, text, and data). I would ditch Rogers for cable and get an antenna (all Toronto channels for free) and Netflix for movies ($10/month).
> 
> ...


1 cell phone + landline (fam needs it) + cable tv + internet
i negotiated and got it down to 175 ish going forward.
and in 4 months we are cancelling cable completely.

noted your point on osap. i need to get that osap amount down however i also want to up the rrsp savings for that downpayment (for whenever we decide to purchase)


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