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!

[contact-form-7 id=”331″ title=”Contact form 1″]

< Older Post Newer Post >

Protect Yourself at Renewal

By Luisa Hough • 15 May, 2024

It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!

The Property Matters in Mortgage Financing

By Luisa Hough • 08 May, 2024

When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.

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.