February 9, 2011

Can I use my RRSP for a Down Payment?

First time Buyers can use their RRSP’s and repay it and everyone has the right to do an RRSP mortgage.

There are 2 ways to fund your down payment from your RRSP:

1. Up to $25,000 per person under the First Time Home Buyer Plan (if you or your spouse did not own a property in the last 5 years). You will have to return the RRSP funds within 15 years.

2. Unlimited amount from your RRSP without having to return any funds within 15 years under the arms/non-arms length mortgage. You basically give yourself a mortgage.

Most people are only aware of the first method.

Actually the second one is much better since you do not “waste” your money paying interest to the bank (the interest paid can be more then double the principal loan amount), you pay it to yourself. You can take a mortgage from the bank together with a mortgage from your own RRSP, pay off the banks first and have the rest of the mortgage paid to your RRSP hence having a long term retirement plan.

This is fairly simple and most lenders don’t want you to know about it because you are taking interest payments you would pay them and then paying yourself instead.

Why do an RRSP mortgage?

1) You are effectively paying interest to yourself and making a good return on your $$$.

2) You could reduce the LTV (Loan to Value) to below 80% on your first mortgage and then not have to pay the Mortgage Insurance (CMHC) fees.

As always find a good mortgage broker. A key indicator of a good broker is one who will detail this option for you.

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