RRSP Time

by Darrin DeRoches March 1 - 7, 2012

Seeing as it is RRSP time, I thought I would expand on the opportunity to use your RRSP to buy a home. The Federal Home Buyers Plan allows first time home buyers to withdraw up to $25,000 from their RRSP for the purpose of buying or building a home. The primary benefits are that the RRSP issuer will not withhold tax on the amount nor will you have to declare the money as income. The total amount must be repaid in 15 years with a minimum repayment of 1/15 of monies borrowed.     The stipulations are that you have not done it before, you have to be considered a first time buyer and your spouse can also take out $25,000 in the same year. So before you go off and say this does not apply to you, consider a person a first time buyer if you have not owned a home in five years as a principal residence you can qualify. There are a lot of people who have been divorced and rented for some time after and if it has been five years you are once again a property virgin, a first–time buyer virgin or some kind divorced virgin. So, if you have built up your RRSPs or better yet, got them in the divorce and have not owned a property as your principal residence, you can qualify.     The next cool thing about taking out the RRSP that most people are not aware of, is you do not have to use it for the down payment. The money can be used for any purpose: new furniture, renovations, and flat screens – whatever you want. If you buy a home with five percent down or zero down then you can use the remainder of the RRSP for any purpose you want and not be taxed.     The other misconception is that when you sell your home you have to pay back the full amount. This is not true at all. All you have to do is keep up with the payments even if the property is sold. People think that putting more money in a RRSP you will gain larger tax benefits, but when the home you buy values up over the years and you do not pay tax on the capital gains, since it is your principle residence. You will actually make a better return than sticking it in a RRSP. Remember one day you will have to pay tax on all the profit you make from the RRSP, so do not get blinded by all the money a RRSP will make during the maturity of the investment and focus on the property, increased value of the home and the lifestyle you will enjoy living in the home for the next 15 years.           You cannot live in a RRSP but it can help you buy your next home!  V         Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.