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Can you use your RRSP to buy a home? (including when and how to do it)

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

April 18, 2019 - Karl Yeh

In this episode, we discuss using your RRSP to buy a home, how much can you take out, and when can you do it. We also explore how/when you need to repay your RRSP, if you could use your RRSP to buy a second home and if you could use your RRSP more than once. 

  

 

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Transcription:

Hi everyone. I'm Karl and welcome to another Homebuyer's School video, a channel where you get the latest strategies, tactics and tips from home buying experts.

And remember, if this is your first time on this channel and you want to get the latest strategies from the experts, hit the subscription button [00:00:30] below, hit the little notification bell so you don't miss anything.

Karl Yeh:                             

So today I'm joined by Mujtaba Syed, Mortgage Specialist with the Bank of Montreal, and the question we're going to answer today, well, actually the topic we're going to talk about today is:

RRSP and Mortgages

Karl Yeh:                             

So let's just really make it really basic, let's go really simple,

What is a RRSP?

Mujtaba Syed:                  

Yeah, so RRSP, Karl, is a Registered Retirement Savings Plan, so the government actually came up with this program to promote people to save for their retirement.

So the [00:01:00] way it works is that it is a registered product, an investment vehicle that we call it, and then every year when you do your taxes you are given a contribution room.

This is the amount of dollars that you can put in.

Mujtaba Syed:                  

The way it works is that when you put this money into a Registered Retirement Savings Plan, usually you'll get a tax certificate from the lender or from the institution that's taken it and you can actually help that actually offset some of your taxes.

And that's how the government has promoted that so to get some money back from your taxes to promote people to save [00:01:30] for their retirement.

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Karl Yeh:                             

In terms of home buying,

Can you use your RRSP to buy a house?

Mujtaba Syed:                   

So in a usual scenario, taking money out of a registered product like RRSP, there's usually withholding tax and there's a lot of other implications that are not advisable.

So if you're putting money into your RRSP definitely have a chat with your banker, with your financial advisor, to see what your future goals are with that money because sometimes it might [00:02:00] be more difficult to get it out.               

But the only two times that the government actually lets you take money out for an RRSP is as a first-time homebuyer, which is a great program.

And the other one is called a Lifelong Learning Plan.

And there are some stipulations to that, but if you decide to go back to school, you're a mature student, you need funds, you can actually take money out from your RRSP as well without any tax implications or reporting as income for that year [00:02:30].

Karl Yeh:                             

How much can you take out from your RRSP as a first-time homebuyer?

Mujtaba Syed:                  

Previously it was 25 thousand per individual, so for a couple it would be a maximum of 50 thousand.

But based on the new budget that just came out with the homebuyer incentive, they actually did raise that as well.

So they actually raised it $35,000 per individual, so a total of $70,000 per couple. Yeah, I think that's up to $35,000.

Karl Yeh:                              Okay.

And remember if you want to know more about the First-time Homebuyer Incentive Program that the government [00:03:00] just came out, watch our video above and in the description below. 

 

Karl Yeh:                             

So you can borrow up to $35,000 now, right, when that program rolls out, so can I use this outside of being a first-time homebuyer?

Can I use my RRSP to buy let's say a second house?

Mujtaba Syed:                  

Technically before you couldn't, but the new Homebuyer Incentive Program has made it really easy now for us to be able to take money out and there's some requirements.

The requirements are that you need [00:03:30] to, for example let's say you're relocating for work and you need to buy a new home, you have access to your First-time Homebuyer's Plan.

Let's say the death of a spouse or you get divorced from your spouse and you want to purchase a new home for yourself and you've already used your First-time Homebuyer's Plan you can do it again.

Or to help an elderly relative.

It could be your parents if they're elderly, a grandparent, any immediate family that falls into that criteria.

You can actually take out a First-time Homebuyer's Plan to actually help [00:04:00] them as well.        

So previously, no. But now, yes.

They've actually made the rules a little bit more relaxed to get more people into home ownership. 

 

Karl Yeh:                              

How do you repay the RRSP once you've taken it out?

Mujtaba Syed:                  

Yeah, so the requirement right now is it's payable over 15 years. Right?

So the first time that you take it you have to pay it back after 15 years, so after 15 years if you don't pay it back there's no such penalty, but the amount would just get added back to your income every  year and you just end up paying tax.

It [00:04:30] could be minimal, it could a lot. That's the conversation to have with your accountant.

Karl Yeh:                             

So this whole program is called the First-Time Homebuyer Plan, right? The ability to use your RRSP for first-time home buyers, right? So that's why it's called the First-Time Homebuyer's Plan, which is very different than the First-time Homebuyers Incentive Program, which they just announced [00:05:00].                            

Can I use my RRSPs to buy a home more than once?

Or you're only allowed to use it once?

Mujtaba Syed:                  

You can buy it more on once depending on the stipulations that we talked previously about.

So let's say if you're relocating for work, you can use it again and in the event of the death of a spouse or if you've been divorced from your spouse and you want to buy a home, you can do that again.

Or if you want to take care of an elderly relative, like you want to purchase a home for them as a secondary home, you can use it for that. So you definitely could use it more than once [00:05:30] in these scenarios.

Karl Yeh:                             

What are the advantages of actually using the RRSP or the First-time Homebuyers Plan for a down payment?

Mujtaba Syed:                  

I think it's a great program. It's a great incentive.

So every time you put money into this registered product or RRSP, you get money back from the government. As we all know it's almost really difficult to get your money back from the government.            

We pay taxes and then this is the only real way of getting money back from your taxes [00:06:00] and to kind of really promote that saving.

Now there's no other program that you can actually pull this money out tax free except a First-time Homebuyer's Plan.            

So in this scenario I would recommend that if you have some time, definitely start investing into an RRSP now if you have some money in savings and your plans in the future are to purchase a home, definitely put those funds in RRSP.

Have a conversation with your specialist, with your lender, to see if this is the right thing to do [00:06:30].

The stipulation is that before you can actually access those funds for a First-time Homebuyer's Plan, they have to be in the RRSP account for at least 90 days.

So if your possession date is coming prior to 90 days or you need access to those funds prior to 90 days, maybe your RRSP is not going to work yet because it's going to be locked.             

But other than that it's a great program, a great way to get money back from the government.

It could even help you save money towards your down payment with the tax rebate that you get at the end of the year and overall being repayable over 15 [00:07:00] years is almost like it's a no-brainer. But it seems a very easy thing to do for such a great program.

Karl Yeh:                              Perfect. Do you have anything else to add?

Mujtaba Syed:                  

I think a lot of clients are not too familiar with the First-time Homebuyer's Plan. I do get a lot of my clients calling me and asking me about that.

As soon as I sit down with a client at the time of pre-approval, they still have some time before they're looking at buying.

Now as the first thing I definitely bring up during our conversation is, "Do you have an RRSP? Have you invested into an RRSP?" And then I go into great detail [00:07:30] to explaining the benefits of an RRSP.

Mujtaba Syed:                  

So if you don't know about an RRSP, definitely reach out to your bank, to your financial advisor, to your specialist, and ask them, "What is a First-time Homebuyer's Plan, what is an RRSP, how will it help me in my scenario?"

And they can go into detail, but it's definitely a product that you should know about and get to know a lot about.

Karl Yeh:                             

Great.

So the question of the day I have for you is:

Have you or are you planning to use this First-time Homebuyer's Plan, and if so, did it help?  Were you actually able to afford the house or your dream home using the First-time Homebuyer Plan?

Let us know in the description below [00:08:00].

Karl Yeh:                             

Thank you very much for joining us and remember if you enjoyed this video and found it helpful, make sure to like as well as leave a comment and subscribe.

Thank you and we'll catch you next time.

 

Your turn:

Let us know if you have additional mortgage or financing related questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from home buying experts.  

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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