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With increasing home prices it can be overwhelming to think about saving the minimum 5% downpayment required to qualify for a mortgage.

With the Home Buyers Plan an RRSP is a great vehicle to capitalize on some perks that help accelerate this process. Why not take advantage of some double dipping.

Now is a great time to review this as we have until February 28, 2018 to max out our contributions for 2017.

First let’s look at how RRSP contributions work?

  1. Contribution limits are calculated at 18% of the prior year’s reported earned income.
  2. RRSP contributions within the first 60 days of the tax year may also be used as deduction for the previous tax year. The savings depend on the tax bracket.
  3. Some employers will match contributions or even offer a group RRSP plan. Take advantage of it!

How does the Home Buyers Plan work?

  1. A borrower can borrow up to $25000.00 single or $50000/couple tax free from one’s RRSP for a downpayment as long as one hasn’t been a home-owner for five years.
  2. The funds have to stay in the RRSP for 90 days before withdrawal.

How can you make the most of it?

  1. Some employers match contributions or offer group RRSP plans . Can you say free money? Take advantage of it!
  2. You increase your savings by increasing your tax refund and either add it to the RRSP or pay down an RRSP loan. Take advantage of it!
  3. RRSP loans can be used to maximize your contribution and tax savings.

 

Example:  Fast-tracking your downpayment with a $5000 RRSP loan. Borrower with 32% tax bracket makes $250/month RRSP contribution. Employer matches contribution 1:1. 

  • $8000 Yearly contribution by borrower
  • $3000 Yearly matched employer contribution (this could vary depending on the employers cap on contribution)
  • $11,000 Total RRSP balance
  • $5000 RRSP loan
  • $2560 Tax savings applied as RRSP loan payment
  • $2440 remaining RRSP loan balance 

You will save up for a downpayment a lot quicker than with a regular savings account. This strategy might help to become a homeowner sooner.

What if you also got a $5000 gift from a parent on top of this to help you out? $16000 as a 5% downpayment could put you into a $320000 purchase oac.

What if you and your spouse both did this? $22,000 as a 5% downpayment could put you into a $440000 purchase oac.

Maybe you are closer to qualifying for a mortgage than you think. Let’s have a conversation!

Feel free to contact me!

Don’t leave money on the table!

Canadian Home Buyers Plan Link

It is important to seek advice from licensed professionals (financial planner, accountant, mortgage broker) for your own scenarios.