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Financing, Mortgages and Insurance What options are best for you and your situation?


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Old 2014-12-03, 09:01 PM
d4nnyb0i d4nnyb0i is offline
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Default New to home buying advice

Hi there,

I've never purchased a piece of real estate before so there are some questions I'd like to see what some of you more experienced folks might think.

One thing that I struggle to wrap my head around is the option to use borrow the $25k out of my RRSP for down payment. Yes when I contribute to my RRSP I get a tax refund, in turn I can further increase my down payment even more. However I'm putting myself in debt at this point to take advantage of the refund dollars to help beef up my down payment amount plus incur monthly payments to repay the RRSP I've withdrawn.

Would you recommend putting money away in an RRSP to get the tax refund then borrow, or just put the money away in a non RRSP account to avoid getting into debt but have less down payment money?

Thanks,
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Old 2014-12-04, 10:50 AM
kitutd kitutd is offline
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Quote:
Originally Posted by d4nnyb0i View Post
Hi there,

I've never purchased a piece of real estate before so there are some questions I'd like to see what some of you more experienced folks might think.

One thing that I struggle to wrap my head around is the option to use borrow the $25k out of my RRSP for down payment. Yes when I contribute to my RRSP I get a tax refund, in turn I can further increase my down payment even more. However I'm putting myself in debt at this point to take advantage of the refund dollars to help beef up my down payment amount plus incur monthly payments to repay the RRSP I've withdrawn.

Would you recommend putting money away in an RRSP to get the tax refund then borrow, or just put the money away in a non RRSP account to avoid getting into debt but have less down payment money?

Thanks,
Good question, but I think it all comes down to your personal situation. IMO if taking money out of your RRSP for the first time home buyers plan helps you buy a home you wish to live in than it could be worth it. If I was in your shoes and taking out 25k helped me get over the 20% downpayment mark I would seriously consider it as you are not paying CMCH insurance on your mortgage (which is more of your money going into someones else's pocket).
In regards to paying back your RRSP, I believe you have a two year grace period and than you have to start paying back, but when you start contributing back into your RRSP you have to indicate how much of what you are contributing is being paid back for the home buyers plan versus what you want to go against your taxes.

Its always best to speak to an actual financial advisor as they can help with the numbers side of things. For me personally I just bought a home but our goal was always to use the TFSA and non registered vehicles to save for the home. I contributed to my RRSP directly through my company but it was in no way an aggressive retirement plan. Again this is just my opinion but if its going to be a struggle to pay back than you might want to avoid that route.

Hope that helps
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Old 2014-12-04, 09:07 PM
d4nnyb0i d4nnyb0i is offline
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I suppose you are correct. I am a fairly young lad so every dollar counts towards my down payment.

Another question is it seems home builders like to advertise to have potential buyers bring their mortgage pre approval to the sales office if they're going to buy. However some say they just fill in a form from the builder asking for personal income information and that was it. Have you had experience with that?
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Old 2014-12-05, 08:56 AM
Chard2014 Chard2014 is offline
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Hello d4nnyb0i

When we bought our first home (over 14 years ago) we took advantage of this RRSP feature in the following way. I'd worked in at a private company for a few years and hadn't fully utilized all my available RRSP limit. We were over 120 days before closing and we had the cash for the downpayment in a regular savings account. We transferred the money from our savings account into an RRSP vehicle. After 90 days (money has to be in an RRSP account for at least 90 days before withdrawing as part of the Home Buyers Plan), or whenever we need to provide the deposites, we pulled the money out. Because we did a large RRSP contribution, it translated to an increased tax refund. We then used the tax refund to start "paying back" our RRSP withdrawal.

Further, IMO, if your close to having 20% downpayment I would borrow the difference such that you can avoid paying the CMHC fee.

You should talk to a financial advisor to verify that the terms of this program are still applicable but we found it very beneficial.

Hope this is clear and helps.

Chard2014
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Old 2014-12-05, 09:10 AM
Chard2014 Chard2014 is offline
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Oh... regarding being pre-approved when you sign with a builder. I'd agree with having it done. This way you know exactly what you can and can't affort. Once you sign the Agreement to Purchase and Sale documents with a seller it becomes a firm sale. Our builder's sales rep stressed this point both times we bought a home. If your finances are not squared away you'll be on the hook for a home you might not be able to afford.

Chard2014
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Old 2014-12-05, 12:00 PM
WellThatsLovely WellThatsLovely is offline
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Calculate how much your RRSP earns, what's the mortgage rate and how much is the difference it would make to the CMHC fee...
Money is very inexpensive to borrow right now... Keep in mind when doing research that there have been times where mortgage interest rates were close to 20% and some people's RRSPs earn 10%-20% so this strategy isn't the same for everyone across the board.
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Old 2014-12-11, 04:30 PM
GreyingJay GreyingJay is offline
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Quote:
Originally Posted by d4nnyb0i View Post
I suppose you are correct. I am a fairly young lad so every dollar counts towards my down payment.

Another question is it seems home builders like to advertise to have potential buyers bring their mortgage pre approval to the sales office if they're going to buy. However some say they just fill in a form from the builder asking for personal income information and that was it. Have you had experience with that?
That's the reason I used the Home Buyer's Plan when I bought my house. I happened to have $20K+ in RRSP's already and it was easiest to simply borrow it than find another way to come up with the money. It would have taken me years to save up/invest another $20K in cash, or it would have cost me interest to borrow that kind of money from some kind of line of credit.

When you sign an agreement to buy a home, you should have a 5-7 day grace period during which you can come back and cancel the deal if you could not secure financing or if your lawyer advises you to back out for any reason. It is always wise to call the bank first to get a mortgage preapproval so you have already crunched the numbers and are aware of how much you can afford to spend.

However, if you are confident in your situation, you could sign the deal with the builder first and then get the mortgage pre-approval. It just means you are under a little time pressure to get it done.

Don't forget to account for upgrades when you buy the house. That $350K sticker price may end up being closer to $375K by the time you upgrade everything to just how you like it, and you may be required to pay some of that upgrade price up front. Ask about the terms before you sign an agreement.
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