Do you want to buy a house in Nanaimo but lack the funds?
If you have an RRSP plan, you can withdraw from it without penalty.
It’s called the Home Buyers Plan (HBP), a federal program that allows first time home buyers to withdraw up to $25,000 to purchase or build their first home.
To take advantage of the program, you have to repay the money back over 15 years.
Failing to make the annual minimum repayment means it will be taxed and added to your income for that year.
The plus side to the HBP is that new buyers can make a larger down payment for their first home, which will mean lower interest payments.
The downside is that money is being taken from your lifetime savings to buy a house.
Since a house is the largest investment a person will make, the pros and cons need to be carefully weighed. With the HBP, no tax is added to income as long as the required repayments are made
One of the big concerns is of being caught in a cash flow crunch which could lead to tax penalties later.
This could also take a hit on the ability to make regular contributions to the RRSP plan.
Without these write-offs, the tax bill could go up considerably.
If the buyer or their spouse are about to drop into a lower tax bracket due to a lower income or plans to retire, then the HBP may make more sense.
This is because there may be very little to no tax consequences if one is not able to make repayments as required.
With continued low interest rates, the HBP can be a very good alternative for new buyers looking at getting into the housing market.
The caveat is that the pros and cons need to be decided to determine if one is better off making that decision.
Another strategy is to get an RRSP Mortgage – which is essentially a loan from the RRSP. This loan has to be secured by the Canadian Mortage and Housing Corporation (CMHC) or a public mortgage insurer, such as Genworth Canadian Financial or AIG United Guaranty Canada.
So the loan would be used to pay down the mortgage, saving the difference paid on the interest rates you would normally pay on the mortgage and the return you make on your RRSP.
Realty Executives Mid Island has a team of REALTORS®s who can help you buy your home in Nanaimo. Contact us today to find out how we can help.
