RRSP's - Deadline Approaching - More Than Just A Savings Tool.

This years RRSP deadline is fast approaching.  Do you have a home puchase in mind ?  Might be a consideration to contribute to your RRSP fund and "flip" the funds towards your first home purchase.  The Home Buyers Plan (link) being offered could be problem solved for some of the down payment - if not all - depending on purchase price.

The RRSP Home Buyers Plan is a program that allows first time home buyers to withdraw up to $25,000.00 from their RRSP and apply it toward their first home, TAX FREE.  If you happen to be married - your spouse can also withdraw $25,000.00 from their own RRSP - again tax free.  The fine print.

Of course nothing is free - especially from the government.  You do have to pay the funds back into your RRSP.  The good news is you have 15 years to do so - at 1/15 of the total amount - starting the year after it is "borrowed".

Example - you withdraw $15,000.00.  Starting the year after - you must pay back $1000 per year for 15 years - or 1/15 of the total withdrawal amount.  Not bad considering if you contribute that same amount into an RRSP - you get the tax deduction going in - for that year.  Then you can turn around and withdraw that same amount - without penalty and take 15 years to pay it back.  According to the information - the funds have to be in the RRSP for 90 days - before being pulled out and used for the HBP.  Of course when paying back this amount over the 15 years - there is no tax deduction - as you already received this on the initial RRSP contribution.  Something to think about if a first home purchase is planned for this summer.  Unfortunately you only have until 29 February to beef up the RRSP fund.

Some points to ponder.  If you happen to miss a year of repayment (new golf clubs ?) the worst that can happen is the amount equal to the 1/15 payment schedule - is included as income for that year and you pay tax on that.  You can use the funds for not only the down payment but closing costs, new appliances, renovations, etc - the choice is yours.  Why should I do this ?  For one - its the only way to withdraw from your RRSP - tax free - and get into your first home a bit sooner.  With historic low interest rates - this HBP is interest-free debt to you.

Here is a scenario that might help.  Susan has no RRSP investments.  She takes out a loan of $10,000 to buy RRSP's.  She gets a tax refund of about $4000.  She pays off her high interest credit card (19%) with this refund.  Her RRSP loan is at prime - already making her monthly payments that much smaller.  She pays off the RRSP loan and a year or so down the road - now has $10,000 to use for a down payment - interest free - and 15 years to pay it back.

Rules - you must be a first time home buyer.  You must purchase or build a home before October 1st after the year of withdrawal.  RRSP contributions must be in for 90 days. Let your bank know your doing this - watch out for fees !  You must be a resident of Canada at time of withdrawal.  Here again is the link to the website - HBP - some great info.

Contact me anytime for a chat about the Vancouver real estate market - yes we are still bucking most trends - 2012 is looking steady and strong.  We will see an excellent balance of pricing (I know for some - still much too high) inventory and of course interest rates are not going anywhere - just another reason to consider a purchase or a sale - with the buyer activity still showing strong demand for the right property - at the right price.


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