No down payment is no problem.... its tax time! Leverage the tax season to your advantage

The HBP is a program that allows individuals who have not owned a home in the last 5 years to withdraw up to $25,000 from their RRSPs to buy or build a qualifying home.  The home can be for the applicant or for a related person with a disability.  Why is this plan a benefit?  Because the applicant does not have to claim this withdrawal as income!!  The applicant has 15 years to pay back the withdrawal in minimum 1/15 increments or greater per year until the balance is zero with no income tax implications. 

But what if your client doesn’t have RRSPs to withdraw?  Your applicant can apply for an RRSP loan for $25,000 today.  And as long as the funds remain in the RRSP for 90 days or longer, they can be withdrawn under the HBP plan.  $25,000 as 5% of a purchase price is $500,000.  So we are creating enough of a down payment for up to $500,000 purchase price.  Add a spouse for another $25,000 and there is enough down payment for a $1,000,000 property.  This should cover 99% of your clients.  Essentially….your client is borrowing their down payment! 

There are more benefits too!  The $25,000 contribution still counts as an RRSP contribution for the year which means assuming there is enough room in their contribution limit, and they have paid the appropriate amount of income taxes for the year, this will equate to a hefty tax return that could either be applied to the RRSP loan, pay for any legal fees related to the house purchase, or consolidate high payment and high interest debt.

There are some conditions that apply.  Some RRSPs, such as locked-in or group RRSPs, do not allow you to withdraw funds from them so the client must let their financial planner know what plans they have with the RRSP so they are invested into the correct RRSP product.  The RRSP loan may change the debt service ratio of the mortgage application so when discussing this option with your client, ensure they are speaking with a qualified mortgage professional prior to applying for an RRSP loan as we can work out the entire scenario ahead of time to gauge what effect this will have on debt service ratios.  I have access to accountants and financial planners that can put this program in place so if you have a client that fits this scenario, please call me for a full evaluation of their situation and suitability for this program.

Information provided by Marc Gobeil of TD Bank.

The Dion-Ivans Real Estate Group - Your best source for Kelowna Real Estate.