Buying a Home for the First-Time, consider RRSP's

The Hamilton Spectator, January 29, 2013

Julie Shea

Is it me, or are RRSPs becoming passé?

Every RRSP season there is that inevitable question: “Should I invest in RRSPs or TFSA’s?”  While the answer depends entirely upon the individual’s personal tax situation, if you are a first-time home buyer with goals to purchase a home, RRSP’s are definitely “IN”.

Thanks to the Home Buyers Plan, contributions you make today will not only provide you with a nice tax refund, but that money can be taken out tax free to use towards a down payment on your first home.

Each qualified first-time home buyer is allowed to take up to $25,000 from their RRSP- tax free! A first-time home buyer is someone who has not owned a home in the past four years. So even if you may have owned a home in the past, if four years have passed, you can utilize this program. While you can use the program more than once, you have to make sure the balance has been paid off from the first time. If you qualify, both you and your partner can take up to $25,000 from your RRSP. Then, after a two-year grace period, you will have 15 years to replace it into your RRSP in equal instalments. Your RRSP is an excellent place to save for a down payment because you will be placing it a plan that is difficult to withdraw from. Don’t have the money to contribute right now? Consider an RRSP loan. These are a little easier to qualify for than traditional loans and you pay a large portion back using your RRSP tax refund. RRSP loans are particularly good for people who need to beef up or repair their credit by adding another trade line to their credit history. There are some caveats to making that “soon-to-be-home-buyer” RRSP contribution. If you are planning on purchasing in the next three months be careful using this strategy because money in an RRSP can only be withdrawn tax free if it has been in the RRSP for at least 90 days.

Also, when you make your RRSP contribution with the intention of taking it out for a home, it is best to keep the investments within the RRSP in cash so that it won’t be locked in when you need it.

Traditional GICs have strict maturity dates and you basically have to die to get the money before it matures. Also, don’t place the money in any investments that might have fees for withdrawal.

When you are speaking to your financial adviser make sure to let them know that this money is intended to be used for a down payment on your home. All monies intended for your down payment should be in safe, liquid, no-fee investments.

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