Many people who have been renting are beginning to see more and more advantages in becoming a homeowner, in part due to the extremely low mortgage interest rate environment we are currently in. In many cases, the cost of a mortgage payment and property taxes is less than their current rent cost, on a monthly basis. Adding in the consideration of the aggressive principle paydown due to low rates, it can make a lot of financial sense to buy rather than rent. One of the main hurdles first time homebuyers face is saving up a down payment. It can be difficult to save up even the minimum 5% down payment, especially for young people just entering the workforce. For those with little to moderate savings, leveraging RRSPs can be a solution. Proper planning with RRSP contributions, and/or RRSP loans can help create a down payment fund. I utilized an RRSP loan myself for the purchase of my first home many years ago.
At Jencor, we have established a program for First Time Homebuyers to obtain a down payment of up to $35,000 to help with a home purchase this Spring through RRSPs.
How does it work?
We can assist clients in either transferring their savings to an RRSP account or setting up a loan for the purchase of RRSP funds. We will do this at the time we begin the pre-approval process. The funds are placed into an RRSP account and can then be withdrawn after 90 days to be used for a down payment under the Canadian First Time Homebuyer’s Plan. The rate, term, and repayment of an RRSP loan are determined by the issuing lender on a case-by-case basis.
What is the catch?
Clients taking on an RRSP loan MUST have great credit to qualify for this program and they must be able to afford the monthly loan repayment, along with the usual mortgage qualifying criteria.
Bonus:
Many clients who take advantage of this program also end up with a healthy tax rebate when they file their taxes, as an RRSP purchase will reduce your gross taxable income. For example: An individual who purchases $10,000 in RRSPs (through cash or loan) might receive an additional $3000 in tax rebate from Revenue Canada. Those funds may be used to pay down the loan or directly towards a home down payment (***I am not an accountant, this is a general estimate based on an average applicant’s income, please contact your accountant for exact figures.***)
This can be a fantastic opportunity for someone to get into the market this spring, even if they do not have their down payment set up yet.
The RRSP deadline is March 1st. 2021. Please contact me for more details about this program or with any other questions you might have.