# Should I Withdraw my RRSP to increase my downpayment on my house?



## dwoj99 (Nov 7, 2013)

Hi everyone,

I was wondering whether I should withdraw all my mutual funds in my TFSA and RRSP for the downpayment of my house. I am a first time home buyer and currently building a house where I will not take possesion for approx. 9 months. The total cost of the home is $542,000. I have put an inital $26,800 down and can put as much as I want down when I take possesion, which is when my mortgage will start. I have a variable rate at 2.6%

This is what I have saved for my down payment so far:

PC HISA: $113,200
Chequing:$2,000
RBC HISA: $5,900
RRSP: $22,928 (Scotia mutual funds)
TFSA: $29,410 (More of same mutual funds)
Non registered mutal fund:$49,950 (mutuals again)


Total: $223,388

Based on my income and past history I should be able to save an additional $100,000 before I take posseion of my home (mortage should be around $210,000 if I put everything down) So my question is whether I should put all my money down on my house or hold on to the TFSA and RRSP? I understand that I can only withdraw $25,000 from my RRSP without having to pay taxes on the withdraw. Also should I continue to contribute my maximum amount into my RRSP every year given that I am in the highest tax bracket or should I just put it all towards my house? 

Thanks for the help


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## Spudd (Oct 11, 2011)

I would keep some amount of $ around as an emergency fund. I would also keep maxing the RRSP, since it seems you are in a high income bracket. Aside from that, it depends on how you feel about the odds of your investments making more than you'll be paying in interest on the mortgage. Some people say you should minimize how much you pay down the mortgage since interest rates are so low right now. Others lean towards paying down the mortgage since it's a sure thing. I personally do a blend - I invest in my registered accounts up to the maximum, and then any extra $ I have goes towards the mortgage.


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## peterk (May 16, 2010)

What is the point of withdrawing from the RRSP if you have more than 20% down available from other funds? I think that is pretty much the primary reason for the existance of the HBP...

You have to pay back the HBP withdraw anyways, and with your high income you'll be doing that in no time, plus paying off your morgtage rather quickly as well. Unless your intention is to put every red cent you have into the house, I don't see the point or benefit of withdrawing from the RRSP. It's just adding more forms and transfers and complication than is necessary.


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

I agree with previous two posters. I think you should leave the RRSP and TFSA alone and instead use the non-reg and HISA money. Should give you about $55K. If willing to use your PC TFSA then you would have about $160K to put on the house and save yourself some interest and lower your payments. But def. keep some cash around as emergency and retirement funds, leave your TFSA and RRSP alone as a bare minimum even if you use all of the other money.


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## Guban (Jul 5, 2011)

I think that it depends on how conservative you are. By taking on a bigger mortgage, you are essentially creating a larger nondeductable leveraged portfolio. What do you have invested? If you own fixed income and conservative products, it doesn't make sense to make 2.6% before tax and pay 2.6% after tax money. You may also consider if you have any capital gains to be paid for your non registered investments.

I agree with the previous posters about having cash as an emergency fund.


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## none (Jan 15, 2013)

Absolutely not. Wether it's a single stock or a house you should NOT put all of your assets in a single thing.

Garth Turner has a 'rule of 90' that I think is reasonable regardless of where you think the market is going:

http://vreaa.wordpress.com/2012/08/...pact-will-be-substantial-maybe-life-altering/


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## dwoj99 (Nov 7, 2013)

Thanks for all the advice!

The only thing that was a concern for me and why I was thinking of withdrawing all my RRSP/TFSA was to pay down the house quickly to protect myself from rising interest rates, given I chose the variable.


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## rivet (Nov 30, 2012)

Am I understanding wrong, you only pay back RRSP in 15 years time, say if you can get $10000 tax refund from $25000 RRSP you contributed, you withdraw $25000 for HBP, now essentially you have $35000 in hand, and the $25000 need to be refund in 15 years but without interest. So anything you generated from that $25000 isn't subject to the withdraw tax, isn't that a big advantage. Or if you compare to the case you contribute RRSP as you pay back the HBP, you essentially borrowed the $10000 tax refund in advance interest free and only return it within 15 years. 



peterk said:


> What is the point of withdrawing from the RRSP if you have more than 20% down available from other funds? I think that is pretty much the primary reason for the existance of the HBP...
> 
> You have to pay back the HBP withdraw anyways, and with your high income you'll be doing that in no time, plus paying off your morgtage rather quickly as well. Unless your intention is to put every red cent you have into the house, I don't see the point or benefit of withdrawing from the RRSP. It's just adding more forms and transfers and complication than is necessary.


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## peterk (May 16, 2010)

^^ Yes rivet that is the point, and it's a fantastic benefit for those that *need* the RRSP money to bring their downpayment up to 20% and accelerate their home purchasing timeline. However, if you already have enough money for the downpayment outside the RRSP, there is no benefit of using the HBP other than to reduce your morgtage. But that is a question of asset allocation and how much to pay into your house vs. invest. 

Either way the tax benefit is the same, since the money is already in the RRSP and (likely) already deducted, so you have the $10,000 tax return in your possession whether you use the HBP or not.


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## rivet (Nov 30, 2012)

My point is that even if he has the 20% down payment, he can still pull out the $25000 from RRSP, and invest the $25000. Compare to invest directly inside RRSP, the capital gain or dividend generated from this income is not subject to the withdraw tax compare to invest the $25000 inside RRSP. 



peterk said:


> ^^ Yes rivet that is the point, and it's a fantastic benefit for those that *need* the RRSP money to bring their downpayment up to 20% and accelerate their home purchasing timeline. However, if you already have enough money for the downpayment outside the RRSP, there is no benefit of using the HBP other than to reduce your morgtage. But that is a question of asset allocation and how much to pay into your house vs. invest.
> 
> Either way the tax benefit is the same, since the money is already in the RRSP and (likely) already deducted, so you have the $10,000 tax return in your possession whether you use the HBP or not.


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## Eclectic12 (Oct 20, 2010)

rivet said:


> My point is that even if he has the 20% down payment, he can still pull out the $25000 from RRSP, and invest the $25000.
> Compare to invest directly inside RRSP, the capital gain or dividend generated from this income is not subject to the withdraw tax compare to invest the $25000 inside RRSP.


From what I recall of when I used the HBP, the forms have to show that the $25K withdrawn from the RRSP are being used to pay for the house. Otherwise, the withdrawal will be subject to the withholding tax. So the only way to have $25K to invest is to reduce the other funds that were going to pay for the house.


Cheers


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## Longwinston (Oct 20, 2013)

I would leave the amounts in your TFSA and rrsp. You need to 
Let compounding do it's work. You should get them out of mutual funds though and at least into an etf if you are not interested in a direct buy and hold stock investments. Good luck to you.


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## My Own Advisor (Sep 24, 2012)

I agree with other comments. Leave the RRSP and TFSA money alone. After you get settled, get into some low cost ETFs for the RRSP and some good Canadian dividend paying stocks for the TFSA; get out of those mutual funds.

Get your downpayment money from non-reg and HISA money. Leave about $15,000 for the unexpected, for the move, more furniture, emergency fund, etc.

Good luck with the new place, fun times!


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