Hi, I heard than I can take RRSP loan and use it as part of downpayment, but when I asked RBC about such loan, they told me I can't use it for downpayment. Is it true?

Does anybody have experience taking RSP loan and use it for downpayment for first house (first time buyer)? Is it some different bank I have to ask?

Any bank can do it, you just spoke with someone who doesn't have a clue.

Yes you can use the RRSP money for down payment and closing funds. Probably the best program in Canada for home buyers at the moment. Withdraw $25,000 per person up to $50,000 for a couple towards down payment. Must be repaid back to your RRSP within 15 years. Cannot use the property for investment income (or supplimentary investment income if the home is suited I believe)

You must live in the home as well.

If you are in Alberta, check out the HOME Program for a free $3,000 under CRHC's portfolio. A friend of mine did it. It is a bs three evening course and you have to use their Realtor and lawyer but it is $3k you do not have to come up with.

You can withdraw money from your own RRSP under the home buyer program tax free, but must pay it back over 15 years, otherwise it is taxable income.

You cannot use your or someone else's RRSP for a down payment on a rental property.

You can invest Ito mortgages or real estate based securities like REITs from your rrsp.

Thanks for answers, but you both talking about taking RSP to use for downpayment, my question primary Get a RSP loan from bank , for example
CarryForward RSP Loan

take loan for 5-10 years which can be used later for downpayment. As I was told in bank I can't use it for downpayment until I pay all money back to bank

Taking a loan from your RRSP? I'm not sure what you are asking here. Do you have money saved in your RRSP or are you borrowing money to top up your RRSP to get the tax benefit to buy a house? The latter is probably not allowed. Even if you could find a way to break the rules, you are better off to rent because that leverage is not going to work in your favour anyway.

The rules work great as they already stand (for first-time users of the program, hopefully Liberals will implement the other changes they promised!). Save in your RRSP tax free and use that tax-free money to buy a home. Basically a 30% return on that cash. Repaying that RRSP over 15 years is a good thing as well. RRSP is just part of prudent financial planning for Canadians. It is part of having eggs in more than one basket.

I was probably not clear there, I don't have any money on my RRSP account now, so I am going to take RRSP loan (https://www.tdcanadatrust.com/products-services/borrowing/loans-lines-of-credit/rsp-loan.jsp) - top up RRSP (I want to take $25,000), and after 3 month use them for downpayment.

Is it possible? Legal? in bank I was told I can't do it.

Yes you can borrow money and put it in your rrsp. Then you can take the money out of your rrsp under the home buyer plan to buy a house.

Detailed CRA rules here: http://www.cra-arc.gc.ca/hbp/

But now you have an empty rrsp and a loan to pay and you must pay the home buyer money back to rrsp, too ( 1/15th of loan per year so $1667/year)


Does your cash flow allow that ?

Also, most banks want to see the money in your account for three month before you apply for a loan.

So, assuming you have the income to support the required mortgage and the ability to pay back the rrsp loan plus some reserves you can do it.

Thanks Thomas, yes, in terms of cash flow I can afford it. I booked a meeting with another bank today, will see what they can tell me, if they allow it, I will apply for such loan.

I would not tell the bank what you are doing, unless asked.

I would get the RRSP loan and stuff the 25,000 into my RRSP.

That strategy should be treated separately from a house purchase.

Then, once the 25,000 ( or ideally a bit more, say 30,000) is in the RRSP I'd go to a mortgage broker and get pre-qualified for a loan. Then, once pre-qualified, I'd start looking for a house.

Here are a couple good programs for first time home buyers.

https://www.svshomes.ca/Government-...e-Buyer-Questions-To-Ask-Realtor/Article-3261

AlexShapo said:

Is it possible? Legal? in bank I was told I can't do it.

Click to expand...

Yes to both, as stated above. Bankers will frown on it because it doesn't really make sense that someone will be diligent in repaying an equity loan that they borrowed to borrow a debt loan. Very high risk for bankers, worth a talk with a mortgage broker here.

A big question I would have is why do you need to buy a house right away? Where do you see the advantage of owning today?

A lot of costs are buried into your rent that are direct cost transfers and will save you absolutely nothing to own, ie. property taxes, insurance, maintenance, and utilities. On a SFH, you are looking at around $700 sunk money every month whether you are renting or owning.

Then there is the loss due to purchasing a home with high-equity mortgage. With today's mortgage rules, you will be required to get CMHC loan guarantee at a cost of 3.6% of the total home value. This is a fee added to your mortgage but will increase you mortgage payments and will need to be repaid before you sell. Typically to sell you will need to pay a Realtor and will need a lawyer. So just to break even on your initial cash equity invested to buy the home if you had the 5% cash equity as a down payment you would need to pay down the mortgage for 3.5 years (in a flat market).

In a scenario where you borrow the initial 5% down payment, you are actually over 100% financed on the property. You purchase a condo worth $200,000 but with 3.6% CMHC fee for high ratio mortgage you owe:

$8,000 + interest on the borrowed funds you contributed to your RRSP to get a ~20% rebate cheque for $2,000 to put down $10,000
+ $197,200 in mortage (200,000 home - 10,000 down payment + 7,200 CMHC fee)
= Debt $205,200

3.5 years down the road:
Sell at $200,000 condo purchased value
- $205,200 debt (25 year, 2.5%)
- $11,000 Realtor fees to sell
- $1,500 closing costs
+ $21,650 PPD (2.5% on debt of $205,200)
$3,950 total proceeds

Keep in mind, your mortgage payments were $920 / month + $170 property tax + $50 insurance + $200 condo fees = $1,340 per month.

A condo worth $200,000 in Edmonton will rent in the $1,150 range all in, so you are losing $190 / month for 3.5 years = $7,980

Buy the condo and sell: $3,950 proceeds
Loss from not renting: -$7,980
Loss from buying not renting $4,030

Unless you speculate on an aggressively increasing market it usually does not pay off financially to borrow to purchase.

AlexShapo said:

Hi, I heard than I can take RRSP loan and use it as part of downpayment, but when I asked RBC about such loan, they told me I can't use it for downpayment. Is it true?

Does anybody have experience taking RSP loan and use it for downpayment for first house (first time buyer)? Is it some different bank I have to ask?

Click to expand...

Hi,
Did you find a property?
Why complicate the process. I mean you have nothing in your RRSP.
I understand you want to pay less tax. Have you considered how much money you are losing per month just thinking?
It's not a good time to take a loan to put in your rrsp just in order to take it out and say I am a first time home buyer - accepted by the government to HBP.
Focus on the big picture - arranging your bigger loan, a 1st mortgage.
Thanks

Make sure your debt service ratio still allows you to qualify for a mortgage considering the rsp loan. Check with a mortgage broker of your plans prior to execution as they might offer other alternatives that might work better for you.

As far as I know you can use it for downpayment. If you both qualify you are eligible for rrsp of $50k. This will be really helpful to reduce monthly mortgage payment by placing a large downpayment.