Post # 1
So, here’s the situation:
DH and I have been approved (and can comfortably afford) a mortgage of $230,000.
For the housing that we’re interested in, typically, ey range from 250,000 -270,000. With cash from the sale of our current home, we could likely go to 240,000 and not be house poor.
I was completely against taking out $$ from my RRSP to use towards a down payment, but now I’m wondering if it would be wise to use that $$( about an additional $10,000) to bump up our budget to $250,000 so that it won’t be so hard to getit to the house that we’re looking for.
Im not sure if this is solely a Canadian program, so for those of you who aren’t familiar, home buyers have the option to withdraw from an RRSP, tax free, to make a downpayment on a house. You have 15 years to payback whatever you withdraw.
So, is it a good idea, in terms of getting into a house we love that will help us gain equity, bulooses out on the growth that would happen on the $$in the RRSP if we just left it there?
Fyi-I’m not trying to live beyond my means here. We’d still be taking out a mortgage for $230,000, which we can affordcomfortably, but looking to up our price range by adding some additional cash, not increasing the amount of the mortgage at the bank.
Post # 3
We used our RRSPs (about the same amount as you) for our first home purchase as well.
It didn’t change how much we spent, just helped us put more down, and the $10K isn’t a lot to pay back over 15 years with our income! We didn’t have a lot to put down, so this really helped us feel better about our downpayment amount, and since it was “free” to do, we felt comfortable doing it! In our circle, using it is very common, I would say why not, but of course, you have to be comfortable with it 🙂
Post # 4
I made a post about the HBP not too long ago. Many of the American bees didn’t seem to be for it, but by the sounds of it the similar plan in the US is very different.
I’m still not sure if we use it (if we do it will not be anywhere near the max), but I think it can be a good idea to use it. Just make sure you have enough each month to easily repay it. It especially makes sense if it means you’re avoiding CMHC fees IMO.
Post # 6
I’ve heard REALLY bad things about doing that. : / I’ve never looked into it, and can’t give any personal stories, but I’ve heard horror stories about how bad the penalties are for cashing out your RRSPs earlier.
Post # 7
@Jenniphyr: If you use the HBP and repay them, there is no penalty.
Post # 8
i used RRSP’s for my 1st home purchase. Infact I put in extra money into my rrsp before buying, to maximize it. But i was a 1st time home owner, so things may be different. i Suggest talking with ur financial advisor.
Post # 9
@Jenniphyr: this is a governemtn plan t hat allows you to withdraw for the specific purpose of buying a home. You then have 15 years to pay back the amount you withdrew (paying 1/15th every year). If you do not pay back the 1/15th each year, then you have to pay income tax on that portion.
I did the math, and to pay it back over 15 years, it would be $55/month extra that we’d need to put back into it, over what we already budget to pay back. We could easily cover that plus a little extra to pay it off before 15 years, and still grow it at the same time.
Wondering if there are any financial bees out there that can do the math for me in terms of getting a bigger house (read: more equity) vs the potential growth that we would be missing out on by withdrawing.
Post # 10
@anotherbee: Typically you pay it back when you are filing your taxes and not on top of your regular RRSP contributions. When you file there will be a portion that is for HBP and it calculates for you how much you pay. You also don’t pay anything back the first 2 years.
OP, are you a first time home buyer? You MUST be a first time home buyer to pull out RRSPs. This has all the requirements that must be met: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/menu-eng.html
FI used his to add to his downpayment when he purchased a few years ago and it’s an excellent idea.
FWIW I would always invest in property over the very small potential growth in RRSPs. Just as an example if someone invested 20k into a home as a downpayment and paid $200k (so not the full 20%) in some places that home is now selling for $500K+. You would never get that return with RRSPs.
Post # 11
It’s really hard to guess how that is going to play out because it depends on how the money in your retirement plan is invested. Once you hand your money over to the retirement plan, what do they do with it? Does it go to a mutual fund/stock-based investment or does it go into REITs or Municipal bonds or a simple interest-bearing account?
The big question is, which is expected to gain more value in 15 years: $20k worth of property values or $20k worth of that unknown other investment? If the retirement plan ends up in government or municipal bonds (fairly stable but low return) then the property value is almost certain to be worth more at the end of 15 years and is therefore the better way to go. It’s tougher to say if it’s based in mutual funds or stocks because then you have to look at the stock makeup, but $20k invested in Apple 20 years ago would be worth way more than $20k of real estate in most places (and $20k invested in Research in Motion would be worth only a fraction of its then-value).
Post # 12
FI and I used our RRSP’s with the HBP to help purchase our home. It helped us put a bigger down payment to about CMHC. We’ve got a long time to pay them back and we make decent money so it shouldn’t be a problem 🙂
Post # 13
Thanks for the opionions. I forgot about the first time buyer thing. I already own a mini home (even thought it’s not with an actual mortgage…the banks treat it differently, because it’s on leased land), so I guess I can’t even qualify.
Looks like the RRSP will be staying put. FWIW though, my RRSPs are in mutual funds.
Post # 14
@anotherbee: Yeah unfortunately if you own title/deed to anything then you are no longer considered a first time home buyer. 🙁
Post # 15
I wouldn’t – if you pull the money out of those investments, you are losing the growth that money would otherwise be earning. Retirement accounts are the most beneficial when you put money in them early and leave it alone so that it can continue to compound and grow.