Unless you’ve lived a very sheltered life, you (the first time home buyer) are probably well aware of the fact that you can use your RRSP money to help you buy your first home. But did you realize that you could actually use your RRSP to INCREASE your down payment savings?
In this short 6 minute interview, we check in with Financial Advisor Thomas Johnson of Cascade Financial. He teaches us how, by using one little trick, the first time home buyer can realize a quick 30% windfall for their down payment on their first home. Trust me, it will be well worth your time.
Transcript of the Interview with Thomas Johnson
Bo Kauffmann: How first time home buyers can use our RSPs for their home purchase.
Speaker 2: You’re listening to Winnipeg’s real estate podcast with Bo Kauffmann of Remax performance Realty, answering questions of buyers and sellers of houses and condos in Winnipeg.
Using RRSP to increase your down payment
Bo Kauffmann: Hello everybody. This is Bo Kauffmnan REMAX performance Realty. And today we are going to have a phone call with Thomas Johnson, a financial advisor, life insurance and disability insurance rep for cascade financial. And he’s going to tell us a little bit about how home buyers in Canada can use our RRSP money, to their benefits when buying a house. There are certain rules attached to it, but there are some very, very clear benefits in doing so. So let’s give him a call. Hey, Hey Tom, how are you doing
Thomas Johnson: Not too bad yourself today.
Bo Kauffmann: Good. Excellent. I just want to get right into the, the meat of this here. You and I were talking a little while ago and you made me aware, more aware than I had been over the fact that our RRSPs can come in really handy for first time home buyers. Can you tell me a little bit more about that (how to use RRSP to increase your down payment)
Thomas Johnson: Yeah, absolutely. T he government’s got a great program called the home buyers plan. And what it does is it allows first time home buyers to take up to $35,000 out of their RRSP on a tax free basis, to help them with the purchase of their first home. And then there’s some conditions around repaying it and uh, making sure the money’s in right. But it’s essentially a tax free loan from your RRSP to help you get into a home sooner.
Bo Kauffmann: Okay. Now I know there’s a, there’s a whole bunch of information there. So for example, this might sound like a silly question, but what is a first time buyer? I understand it’s more than just somebody buying a house for the very first time.
Thomas Johnson: Correct. So the easy one is obviously somebody who’s never bought a house before. B ut it also includes people who just haven’t owned a home for the past four years or more. So you might’ve owned a home in the past, moved out or moved in with somebody else or lived in an apartment and getting back into the, the real estate market, you can qualify for the program a second time.
Bo Kauffmann: So four clear years. Okay. Second thing you touched on is that the money has to be in there for a certain amount of time.
Thomas Johnson: Yeah, that’s, that’s a big, uh, I’m going to say. Gotcha. T here’s a 90 day window where the money has to be inside the RRSP for it to qualify for your tax deduction for the year. And as long as the money has sat in there for at least 90 days, you get the tax break up front and you still get to pull it out tax free. If you’ve been putting money aside monthly and you so happened to go buy a house and use your RSP, any money that’s been invested in those previous 90 days, uh, just probably won’t qualify you for your tax break that year.
Bo Kauffmann: Right. But we’ll touch on this again, uh, in a minute from now. Cause it, this brings up a very interesting possibility. Uh, the third question I have is what are the repayment rules
Thomas Johnson: So you usually get a two year grace period, and that way it gives you some time to get your budget under you and get into the groove of being a homeowner. And then all you have to do is repay 1/15th of whatever you took out of your arrestees each and every year for 15 years. And if you don’t repay it in a year, it’s not like somebody comes after you, you just pay the taxes owed on that amount. Um, but the ideal scenario is repaying that money. So somebody who takes 15,000 out of their RSPs has to put back $1,000 a year for 15 years to until they’ve repaid that
Bo Kauffmann: Starting starting with year three. Okay. Um, so touching on that 90 days you came up or you, uh, enlightened me to a, a really good scenario. Here we are right now at the end of September. If somebody wants to buy a house in the spring, what could they do, let’s say they have $20,000 saved, which is, you know, seven or 8% of whatever house they want to buy, how can they get more money?
Thomas Johnson: Um, so all depending on their, their tax bracket and their RSP contribution room. But if they have the RSP contribution room available to them and they qualify for, uh, getting money back as a tax deduction, they could theoretically put that money into an RSP. They would get a big tax break for 2019. And so come tax time next spring, they would get a nice big refund check from CRA and they could apply that towards their down payment as well. So somebody in a say a 30% tax bracket could turn that $20,000 in their checking account into $26,000 for their, uh, for their home.
Bo Kauffmann: But let’s say somebody has $20,000 in, in room, they could put in that money right now and get a tax deduction for 2019 and they can put in another contribution in February. Let’s see, for 2020.
Thomas Johnson: Correct. As long as the, the accrued new contribution rules be able to maximize out that room in 2020 as well, and just hold off on making the deduction claim until the following year’s tax return.
Bo Kauffmann: That’s right. And they can still take that money out. 90 days later.
Thomas Johnson: you get your tax break back, but as long as it’s up there for 90 days, you’d still qualify for the deduction.
Bo Kauffmann: Right. Awesome. Okay. Well, um, that’s, you’ve made me a lot smarter today, so that’s uh, that’s really nice. Now, if people want to discuss this further with you, how do they get ahold of you, Tom (to find out more about how to use your RRSP to increase your down payment on a home)
Thomas Johnson: Uh, you know what You can reach me a number of ways. My email address is, uh, Thomas.Johnson@f55f com. Uh, you can reach me by phone at (204) 837-1960. You can find me on Instagram, Tom@ cascade or you can check out our website, www.cascadefinancialgroup.com.
Bo Kauffmann: Okay. And that email address was F 55 F like in freedom 55 financial. You got it. Okay. Alright. Thanks a lot Tom, and I’ll uh, I’ll be seeing you soon.
Thomas Johnson: Sounds good. Thank you both. Bye. Bye. Bye.
Speaker 5: Are you looking to buy house or a condo in Winnipeg Work with the agent who takes the time to explain the process to you, guiding you through every step for service beyond the sale. Book your home buying consultation with Bo Kaufman, a Remax performance today. Bone knows real estate.
Speaker 2: Hope you’ve enjoyed this episode of Winnipeg’s real estate podcast. All episodes are available on iTunes, Stitcher, and Google play when you are ready to buy or sell a house or a condo in Winnipeg called Bo Kaufman of Remax performance Realty at (204) 333-2202 or email Boknowshomes@gmail.com. Bo knows real estate.
If you prefer to watch the video version of “How to use your RRSP to increase your down payment, here it is:
FAQ about How To Use RRSP to increase your down payment
Q: In order to qualify under the Home Buyers Plan and use my RRSP money, what constitutes a ‘First Time Home Buyer?”
A: If you’ve literally never owned a home in Canada, OR if you have not owned a home in the past 4 years, you would qualify as a ‘First time buyer’ under this program.
Q: How much money can I take out of my RRSP and use towards my home purchase?
A: Everyone who qualifies can withdraw up to $35,000 from their RRSP for a home purchase. So if you AND your spouse are first time buyers (as defined by this plan) you could together take out $70,000.
Q: How fast do I have to repay the RRSP money into my plan?
A: Buyers get a 2-year grace period, during which they do not have to repay any money. After that, the have to re-deposit 1/15 of their withdrawal over the next 15 yrs, in equal increments. If the buyer misses one (or more) years, they simply have to pay the income tax on that 1/15th amount they missed to repay THAT YEAR.