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 Owning a house is one of the best investments you can
make. Your principle residence is exempt from capital gains tax. Real
estate gains usually far exceed mutual funds and they are more secure
than investing in stocks.
| In summary, you can borrow money from your RRSP, and use that to buy your home. You have to pay it back over a 15 year period. If you don't pay it back according to the schedule, you are taxed on the money instead. |
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Most wealthy
people have significant real estate in their portfolios because it is
such a good investment. And the Government of Canada wants it's
citizens to own their own homes too. Thus, we have the Federal Home Buyers Plan (HBP).
With some restrictions you can withdraw up to $20,000 from your own RRSP
to buy a principal residence and not pay tax. A couple can withdraw up
to $40,000. You
are required to buy your RRSP's back again over a fifteen year period.
Which roughly translates (if you withdraw the maximum) to buying back
$1,333.33 of RRSP's per year. You don't get to deduct
on your tax return again as you have already deducted them in the past.
You do not begin buying back the RRSP's for two years.
 If you do not buy back the designated amount of RRSP's in a particular year then
that amount is included in your income and taxed for that year. As per the example
above if after two years you do not buy back the $1,333.33 and designate it for
your HBP then you would be taxed on an additional $1,333.33 in your tax return
that year or any year in the fifteen you do not buy back the $1,333.33.
Almost half of today's first-time home buyers use their RRSP savings to help finance a down payment. It can help on several fronts. You find money you perhaps did not have available to you. Not everyone has funds outside their RRSP available for the down payment. Most banks won't lend you 100%, for a no-money down purchase. You need something to come to the table with.
If you have less than 25%, you have a high ratio mortgage, and are subject to additional CMHC insurance fees. The money from the RRSP can help get you over the 25% limit so you can avoid those fees.
Quick Link: get the forms here
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Some tips to consider: Only borrow as much as you need. If your money is no longer in your RRSP, it is no longer growing. To reduce the amount you borrow will reduce the amount you have to repay. Make sure you do repay the RRSP. If you don't you will lose that opportunity to get the funds back into your RRSP forever. You will also end up paying tax on the money you did not repay. If you can find other sources of funds for your down payment, you may be better off leaving the funds in your RRSP. For the duration you borrow from your RRSP, those funds are not growing within your RRSP.
- In addition to repaying the funds into your RRSP, try and make additional contributions into your RRSP, which will get you a tax deduction.
Buying a house and/or borrowing from your RRSP is a significant thing to do. This article is not meant to be comprehensive, and is more to open your eyes to the options. Please consult with a qualified advisor regarding such things before you commit to anything. If you have any questions, please comment below or click on my name to send me a message privately.
Pat
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Buying a house is hard
Written by 'Guest' on 2006-04-21 18:07:49
Since buying a house was, at the time (before the wedding), the single largest and most complex financial undertaking we had gone through, I can relate to the fact that some people find the prospect daunting. | Locked-in RRSPs
Written by 'Guest' on 2006-04-21 18:13:43
In most cases, you will not be able to withdraw funds from a locked-in RRSP. Locked-in refers to the restrictions and limitations that are imposed by the Pension Benefit Act for each province and territory. The locked-in RRSP is designed to preserve pension assets for your retirement. | Be careful of borrowing too much
Written by 'Guest' on 2006-04-21 18:17:22
If you're planning to borrow the money for the maximum RRSP, you could end up disqualifying yourself for a mortgage because your monthly payments will be too high. Your "total debt servicing ratio" may exceed the usually acceptable monthly maximum of 42%. | Can I borrow money from RRSP to buy home
Written by 'Guest' on 2008-02-18 10:27:35
Can I borrow money from RRSP to buy home outside Canada ?
Please reply to
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| paying back an rrspo
Written by 'Guest' on 2008-04-10 13:17:46
Unfortunately we have noy been able to pay anything back int o the RRSP for the past almost six years. We now are forced to sell in the next few months. It was an RRSP for $10,000 for a down payment for a house... will it just be deducted from our sale or ??? How will that work,
in laymans terms please.. plan and simple...
thank you. | RRSP WITHDRAWAL TO BUY A HOME
Written by 'Guest' on 2008-05-02 22:21:36
Hi, Can I withdraw an RRSP GIC that matures in 2011 to buy a home this year? Thank you. | BUYING VACATION CONDO OUTSIDE CANADA
Written by 'Guest' on 2008-05-15 16:20:59
Would like to purchase retirement condo outside Canada. Could I use RRSP for the purpose and what penalties am I looking at?
Thank you | Guest
Written by 'Guest' on 2008-07-17 11:12:52
Thanks Pat that was helpful!!! | RRSP withdrawal for down payment on cond
Written by 'Guest' on 2008-08-20 17:08:21
Hi,
I am looking to buy a co-operative appartament, i would like to use my RRSP money for down payment, does co-op qualify for this? By saying that couple can withdraw 40 G for the house do you mean any RRSp locked money? Mine are done through my employer and i am collecting it for many years now and i just got married, would i be able to withdraw 40 G's for this appartament?
Please reply. Thank you
my e-mail
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| Janice
Written by 'Guest' on 2008-09-02 20:27:55
Can I use my RRSP as a down payment when I already own a mobile home? | Not first time home buyer
Written by 'Guest' on 2008-10-03 11:41:39
We bought in 1998 but sold in 2000 and haven't owned since. We want to use $18000 from our RRSPs for a downpayment now we want to buy again. Do we count as first time buyers again? If not then can we still use our RRSPs? | Line of credit
Written by 'Guest' on 2008-10-03 11:56:44
If we withdraw from our RRSPs we lose out on interest. Would it make more sense to use our line of credit? Is the interest we'd have to pay on that offset by the interest we gain with RRSPs? | RRSP required time period before using?
Written by 'Guest' on 2009-05-26 05:32:28
Hello, I am a first time prospective home buyer. My situation is I have money in my savings account. If I put that money into my RRSP account, can I then soon after pull that money from the RRSP account and use it as my down payment, as well as benefit from an income tax refund likely to occure due to lowering my taxable income for this year? Or is there a "grace" period for how long the money has to be in the RRSP to be used for this first time buyers plan? Thanks Pat
Owen | INVESTMENT PROPERTIES
Written by 'Guest' on 2009-07-21 23:05:41
HI, CAN I USE MY RRSP'S TO BUY INVESTMENT REAL ESTATE ? | When I need to pay to back rrsp.
Written by 'Guest' on 2010-10-31 16:05:22
Hi,
I bought a condo townhouse on June 27,2008 and I borrowed $20000 from my rrsp accout, couly please let me know when I need to start pay to back to rrsp my account.
Thank you very much !
Yan | BUYING RRSP TO BUY A HOUSE
Written by 'Guest' on 2010-11-03 16:08:31
HI,PEOPLE TELL ME I CAN LOAN MONEY TO A BANK TO BUY RRSP, THEN TAKE THE RRSP MONEY FOR A DOWN PAYMENT OF A HOUSE. HOW'S THAT WORK ?AND DO THE DO A CREDIT CHECK FOR A LOAN TO BUY RRSP? | Purchasing a home in the US
Written by 'Guest' on 2011-06-21 23:39:31
I am saving in my RRSPs to purchase my first home. However, because of work, I might have to move the US. Can I still use my funds in my RRSP to buy a home in the US?
Thanks! | Buying a house as an investment and livi
Written by 'Guest' on 2011-08-24 17:24:15
I've heard of buying a house as an investment and living on the rental income. comment's?? Also heard it has to be a family or close relative. Any legal repercussions and if I can back out if it doesn't work or family moves? | fix
Written by 'Guest' on 2012-01-30 17:33:33
This really helped me when i bought my house... I was so lost http://howtofixstuff.blogspot.com/2012/01/how-to-buy-house.html |
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