How using RRSPs can save you thousands when purchasing your first home.

While saving for the purchase of one’s first home may seem daunting to many of you, it doesn’t have to be. In fact, the government has many incentive programs available that you can take advantage of. Specifically, the RRSP (Registered Retirement Savings Plan) first time home buyers plan is an excellent way to save for that purchase.
If you have never purchased a home, the Home Buyers Plan allows you to withdraw up to $25,000 from your RRSP savings to use towards a down payment towards the purchase of your new home. The key is that these funds can be withdrawn tax free without penalty provided they are re-paid over the next 15 years. Repayments are to begin in the second year after withdrawal. If you have a spouse, they are also eligible to withdraw $25,000 for a total contribution of $50,000.

The funds must be in your RRSP account for a minimum period of 90 days before they can be used towards the Home Buyers Plan. These funds can be used to provide your entire down payment or simply to increase the amount you have already set aside. If you already have your minimum required 5% down payment saved, you may want to consider topping up the down payment to lessen the CMHC premium. Typically lenders will require mortgage loan insurance if a borrower has a down payment of less than 20% of the purchase price of the home. The more you put down, the lower the premium.

You may think that unless you currently have funds invested in an RRSP, this plan isn’t for you. However let’s examine how you could benefit from this program even if you have yet to make any RRSP contributions.

Let’s assume you and your spouse both have $25,000 in unused RRSP contribution room and currently have a down payment of $50,000 set aside in your savings account. The both of you should contribute $25,000 to your RRSP account prior to the contribution deadline (March 1st). This will allow you to claim the amounts on your 2010 tax returns.
Let’s assume both you and your spouse both belong to the 35% income tax bracket, you could each receive income tax refunds of up to $8,750 for a total of $17,500. As previously mentioned, once the funds have been in your RRSP account for 90 days, they can be withdrawn to use towards the purchase of your first home. However, keep in mind that you now also have an additional $17,500 (the tax refund). Rather than having your original $50,000 to put towards your first home, you now have a whopping $67,500 to put down! This will save you thousands of dollars in interest costs on your mortgage and also get you started on saving for retirement! Best of all, it can all be accomplished in only 90 days!

About tylerlaird
Having been born and raised in Ottawa, this city is more than my home, it is a part of who I am and the basis from which all other cities must be compared. I have watched it grow and progress in its size and over time I found myself naturally drawn to the different neighbourhoods, with their varying characters, layouts and styles. After earning a BA in Law from Carleton University, Tyler discovered a new passion, real estate. In 2010, he began to use his passion for Ottawa’s various housing styles and diverse neighbourhoods, to help many people find that place that they can call home.

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