Blog Post

Using an RRSP to Reduce Your Taxes and Buy a Home!

Luisa Hough • Feb 19, 2015

Are are looking to get into the housing market and purchase your first property in the next little while, but saving a downpayment is proving to be difficult? Here is a simple strategy that could help you out!

Let me show you how purchasing an RRSP with the money you have already saved up can actually give you a larger downpayment down the road.

First off, in order to understand the strategy, you have to understand how an RRSP works. Here is a very easy to follow video by Preet Banerjee (Canadian Finance Personality) that explains how an RRSP contribution reduces your income tax. If you haven’t already, take the 3 minutes and watch the video!

So in the video, we learned how Susie Salary took an income of $50k a year, purchased a $5k RRSP in order to trigger a tax refund of $1750. If Susie is buying her first home, she now has $6750 to use for a downpayment, this is because in Canada money in an RRSP can be accessed for a downpayment through what is called the Home Buyers Plan.

So to execute the strategy, you simply take the downpayment you have saved up, purchase an RRSP in order to trigger a tax refund. You then purchase another RRSP when you get your tax refund from the government. From there you will have access to all the funds through the Home Buyers Plan. And as an added bonus, the RRSPs purchased with your refund will actually lower your 2015 taxes as well!

From the Canada Revenue Agency Website:

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

You can find the complete product details here.

Here are some of the highlights of the Home Buyer’s Plan

Funds have to be in the RRSP for a minimum of 90 days before withdrawal.
Maximum amount of funds to be used is $25k per person, $50k per couple.
All funds have to be repaid over the next 15 years.
You must be considered a first time home buyer.

The RRSP contribution deadline for the 2014 tax season is March 2nd 2015.

What do I do now?

Now, if you are relatively new to financial products and you aren’t all that comfortable just walking into your financial institution to purchase an RRSP, that is okay.

You might be thinking, “What if I purchase the wrong kind of RRSP, maybe I won’t be able to access it through the Home Buyers Plan? The deadline is coming up quickly and I don’t want to make a mistake.” Don’t panic. You can actually “park your RRSP in cash”. Which means you simply invest your cash into an RRSP, it will then trigger the refund and you will have full access to your funds when the time comes to use them as a downpayment.

Obviously you will want to discuss your financial situation with an accountant or tax specialist to see exactly how much of a refund you can expect to receive (and then reinvest) in order to purchase a home. If you don’t have a tax specialist, I would love to recommend someone. Likewise, you will want to consult your mortgage professional for professional mortgage advice… that is where I come in. I would love to work with you!

So, if you are planning to purchase a home in the next while, we should probably sit down and work through your numbers. I would love to help put together a plan and when you are ready to buy, I will help you arrange mortgage financing.

It’s never too early to involve me in the home buying process. Planning ahead is the best plan!

Go ahead and fill out the form below and we can get started!

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Bridge Financing and Deposit Lending

By Luisa Hough • 24 Apr, 2024

Let’s say you have a home that you’ve outgrown; it’s time to make a move to something better suited to your needs and lifestyle. You have no desire to keep two properties, so selling your existing home and moving into something new (to you) is the best idea. Ideally, when planning out how that looks, most people want to take possession of the new house before moving out of the old one. Not only does this make moving your stuff more manageable, but it also allows you to make the new home a little more “you” by painting or completing some minor renovations before moving in. But what if you need the money from the sale of your existing home to come up with the downpayment for your next home? This situation is where bridge financing comes in. Bridge financing allows you to bridge the financial gap between the firm sale of your current home and the purchase of your new home. Bridge financing allows you to access some of the equity in your existing property and use it for the downpayment on the property you are buying. So now let’s also say that it’s a very competitive housing market where you’re looking to buy. Chances are you’ll want to make the best offer you can and include a significant deposit. If you don’t have immediate access to the cash in your bank account, but you do have equity in your home, a deposit loan allows you to make a very strong offer when negotiating the terms of purchasing your new home. Now, to secure bridge financing and/or a deposit loan, you must have a firm sale on your existing home. If you don’t have a firm sale on your home, you won’t get the bridge financing or deposit loan because there is no concrete way for a lender to calculate how much equity you have available. A firm sale is the key to securing bridge financing and a deposit loan. So if you’d like to know more about bridge financing, deposit loans, or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you.

A First Home Savings Account (FHSA)

By Luisa Hough • 18 Apr, 2024

Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.

Understanding the Recent Housing Affordability Measures in Canada

By Luisa Hough • 18 Apr, 2024

In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.