You have probably grown tired of hearing how you should be saving for your senior years, and maybe you have played it smart and taken out some RRSPs (registered retirement savings plan). You are still young and have a long future ahead of you in the meantime. Lots of decisions to be made in these future years, and one that you may be contemplating, is whether you should buy a home now or wait. Also, should you use your RRSP funds to help with this?
Basically this is the HBP or Home Buyers’ Plan. What it will let you do is withdraw money out of your RRSPs, to buy a home. Naturally there are a bunch of restrictions and criteria to be followed. The maximum amount that you can take out in a year is $25,000. However, you will be required to pay this back no later than 15 years, and you have to repay a certain amount within each year until you have reduced the HBP to zero. If you skip a year of payment then that amount gets included in your income for that year, and you guessed it. You could end up paying tax on it.
The opportunity to use some of the money from your RRSP is not just restricted to buying a home. You need to fully understand what your options are with your RRSP savings and any repercussions that could come with using those funds.
You have to be considered a first time home buyer if you intend on using some of your RRSP money for this. It may be according to your circumstances that you may not qualify but your spouse does, or vice versa.
You also need to give some careful thought into using these funds for this purpose.
Keep in mind that you do have to get the money back into your RRSP on a yearly basis, but you also need to look at the current housing market to determine according to your circumstances, is the timing for buying a house now right for you? It could be that there are lots of houses on the current market, and the interest rates are good. This provides a good house buying environment. This particular market can be unstable, and if you decide to put your house buying off for another year there are no guarantees that it is going to be the same as it is now.
The more money you have to put down on your house purchase the better it is for you financially. If you can raise 20% or over for this then you can avoid having to have mortgage default insurance, which can be pricey.
You have to look at what your costs are now going to be with the purchase of your new home. You are going to have your mortgage and taxes. Then if you have borrowed from your RRSP, starting the 2nd year from the year of the loan you are going to have to repay this money back into your RRSP. One of the problems that often occurs, is that a lot of people neglect to do this, and it ends up costing them in penalties.
If you are considering using your RRSP funds it is always a wise idea to discuss this with your tax accountant first. This expert can give you some valuable insight as to the pros and cons of doing this in respect to your specific financial situation.
