Why not make your money work for you.

 

With the recent recession, everyone is getting back to the basics, and thinking about where their

money goes.  People are thinking twice about debt, and spending beyond their means.  This is why buyerss are becoming smarter, and more knowledgeable.  Now more than ever we have to squeeze every penny out of our hard earned money.  So this is why we love the ability for first time buyers to be able to use their RRSP savings for a down payment on their house without a tax penalty.

 

People who invest their money into an RRSP understand the real benefit of this government incentive.  It is like getting an automatic 15-25 % gain on your money in one year.  If you’re in the lowest tax bracket let’s see an example.  You make 35,589 this year (just squeezing you into that lowest tax bracket), and decide to save 5,000 towards the down payment of your dream home so you put this money into an RRSP, instead of paying the normal $4,476 tax you will pay only $3,473 in tax (this calculation is an estimate). An automatic 20% return on investment!  Which at the same time, you will receive this payment after you file your taxes in April, then what you can do with it is up to you, but why not invest that money too!  So now you have $6,000 saved up already for your down payment.  Keep going on with this process and you will have the money in less than 3.5 years in addition you may have banked a few extra dollars if the RRSP’s have gone up in those 3.5 years.

 

Now to use this RRSP savings for a down payment you can use up to $20,000.  Most banks require a minimum of 5% down for a home, so that 5% down can go towards a $400,000 home.  But wait let’s say you’re married, you and your spouse can both contribute $20,000 of RRSP’s to your down payment, and let’s take that same $400,000 house, and you have just made a 10% down payment.  Much more than most first time buyers.  Making that extra 5% down payment will save you a good chunk of money in interest.

 

Now just like government incentives there are some rules and regulations here are some of the them:

-          You must begin to pay back your RRSP account 2 years after the money has been withdrawn

-          You have 15 years to pay back the money and each year you must contribute 1/15 the amount you owe.

-          The funds must have been deposited more than 90 days prior to the withdrawal

-          A signed agreement proving that you actually intend on buying or building a home must be provided (if you’re trying to just scam the system jokes on you because you are pulling your money out of the stock market with a good cause.)

-          You must buy or build before October 1st of the following year you withdrew the RRSP funds.  (why October 1st?  We don’t know but do let us know if you find a good reason for that day!)

 

For more information on tax calculations, and is a great tool to see what your tax savings will be if you invest in RRSP’s visit:

 

http://www.taxtips.ca/calculators/taxcalculator.htm

For more information on using an RRSP as a down payment through the Home Buyer’s plan visit:

http://www.canequity.com/mortgage-resources/library/using_rrsp_downpayment.stm