Blog Post

Using an RRSP to Reduce Your Taxes and Buy a Home!

Luisa Hough • Feb 19, 2015

Are are looking to get into the housing market and purchase your first property in the next little while, but saving a downpayment is proving to be difficult? Here is a simple strategy that could help you out!

Let me show you how purchasing an RRSP with the money you have already saved up can actually give you a larger downpayment down the road.

First off, in order to understand the strategy, you have to understand how an RRSP works. Here is a very easy to follow video by Preet Banerjee (Canadian Finance Personality) that explains how an RRSP contribution reduces your income tax. If you haven’t already, take the 3 minutes and watch the video!

So in the video, we learned how Susie Salary took an income of $50k a year, purchased a $5k RRSP in order to trigger a tax refund of $1750. If Susie is buying her first home, she now has $6750 to use for a downpayment, this is because in Canada money in an RRSP can be accessed for a downpayment through what is called the Home Buyers Plan.

So to execute the strategy, you simply take the downpayment you have saved up, purchase an RRSP in order to trigger a tax refund. You then purchase another RRSP when you get your tax refund from the government. From there you will have access to all the funds through the Home Buyers Plan. And as an added bonus, the RRSPs purchased with your refund will actually lower your 2015 taxes as well!

From the Canada Revenue Agency Website:

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

You can find the complete product details here.

Here are some of the highlights of the Home Buyer’s Plan

Funds have to be in the RRSP for a minimum of 90 days before withdrawal.
Maximum amount of funds to be used is $25k per person, $50k per couple.
All funds have to be repaid over the next 15 years.
You must be considered a first time home buyer.

The RRSP contribution deadline for the 2014 tax season is March 2nd 2015.

What do I do now?

Now, if you are relatively new to financial products and you aren’t all that comfortable just walking into your financial institution to purchase an RRSP, that is okay.

You might be thinking, “What if I purchase the wrong kind of RRSP, maybe I won’t be able to access it through the Home Buyers Plan? The deadline is coming up quickly and I don’t want to make a mistake.” Don’t panic. You can actually “park your RRSP in cash”. Which means you simply invest your cash into an RRSP, it will then trigger the refund and you will have full access to your funds when the time comes to use them as a downpayment.

Obviously you will want to discuss your financial situation with an accountant or tax specialist to see exactly how much of a refund you can expect to receive (and then reinvest) in order to purchase a home. If you don’t have a tax specialist, I would love to recommend someone. Likewise, you will want to consult your mortgage professional for professional mortgage advice… that is where I come in. I would love to work with you!

So, if you are planning to purchase a home in the next while, we should probably sit down and work through your numbers. I would love to help put together a plan and when you are ready to buy, I will help you arrange mortgage financing.

It’s never too early to involve me in the home buying process. Planning ahead is the best plan!

Go ahead and fill out the form below and we can get started!

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Getting a Mortgage While on Parental Leave

By Luisa Hough • 01 May, 2024

Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.

Bridge Financing and Deposit Lending

By Luisa Hough • 24 Apr, 2024

Let’s say you have a home that you’ve outgrown; it’s time to make a move to something better suited to your needs and lifestyle. You have no desire to keep two properties, so selling your existing home and moving into something new (to you) is the best idea. Ideally, when planning out how that looks, most people want to take possession of the new house before moving out of the old one. Not only does this make moving your stuff more manageable, but it also allows you to make the new home a little more “you” by painting or completing some minor renovations before moving in. But what if you need the money from the sale of your existing home to come up with the downpayment for your next home? This situation is where bridge financing comes in. Bridge financing allows you to bridge the financial gap between the firm sale of your current home and the purchase of your new home. Bridge financing allows you to access some of the equity in your existing property and use it for the downpayment on the property you are buying. So now let’s also say that it’s a very competitive housing market where you’re looking to buy. Chances are you’ll want to make the best offer you can and include a significant deposit. If you don’t have immediate access to the cash in your bank account, but you do have equity in your home, a deposit loan allows you to make a very strong offer when negotiating the terms of purchasing your new home. Now, to secure bridge financing and/or a deposit loan, you must have a firm sale on your existing home. If you don’t have a firm sale on your home, you won’t get the bridge financing or deposit loan because there is no concrete way for a lender to calculate how much equity you have available. A firm sale is the key to securing bridge financing and a deposit loan. So if you’d like to know more about bridge financing, deposit loans, or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you.

A First Home Savings Account (FHSA)

By Luisa Hough • 18 Apr, 2024

Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.