I often wonder if I’m the only parent here in Orangeville who wonders how my kids are going to be able to afford to purchase their first home. Even if they have great jobs, the changes to the mortgage rules and the implementation of the “stress test” are making it very difficult for people to get into the real estate marketplace. So how are people doing it? Some people point to the bank of mom and dad but not all parents are in a position to help the kids out. If you’re starting to worry that your kids will be living with you indefinitely, fear not, there is help on the horizon.
There is a program that exists here in Dufferin called the Home Buyers’ Plan. What it allows first time home buyers use up to $25,000/person or $50,000/couple out of their RRSP savings to help with the financing of the down payment of a home. These funds can be used to help a buyer come up with a 20% down payment if buyers wish to avoid mortgage insurance. So here is how it works.
This program is for first time home buyers. The money to be used must be on deposit in an RRSP vehicle for a minimum of 90 days. This is one way to be able to withdraw money out of an RRSP without triggering taxes. It is a tax free and interest free “loan” (yes, of your own money) that can be repaid over a period of 15 years. There is no penalty applied if a person chooses to repay the RRSP money sooner than 15 years.
The downside of this is that you do lose your opportunity to have the funds that you have withdrawn grow in a tax free compound interest environment. As well, if you don’t make your annual repayment amounts each year, the unpaid amount becomes fully taxable for that year. And finally, even if you ran into financial difficulty and had to declare bankruptcy, you will still be responsible to make your RRSP repayments each year.
If an individual has already saved $25,000 as a down payment, and if they have enough contribution room in their RRSP contributions (this amount can be found on your annual notice of assessment), what some people will do is deposit the $25,000 into their RRSP account (remember it has to be in this account for 90 days) and then withdraw the funds from the RRSP and use this as part of their down payment. This will then trigger a tax refund. Once you receive the refund you can immediately use it to “repay” you RRSP account.
Your annual repayment amounts are determined by taking the total amount that a person has withdrawn from their RRSP and dividing it by 15. As mentioned earlier there is no penalty for prepaying the amount sooner than the 15 years.
With home and condominium prices continuing to climb in Dufferin, this is one opportunity for first time home buyers to find some assistance to get into the housing market. If you have any questions about purchasing your first home here in Orangeville, Grand Valley, Shelburne or Caledon please feel free to reach out. We would welcome the opportunity to be of service.