Consider using RRSPs for down payment

THINK OUTSIDE THE BOX:  No RRSP’s??… but you have existing savings or gifted funds for down payment??…. If your purchase is not closing for at least 90 days, consider depositing your savings and/or gifted funds to your RRSP – you’ll be able to withdraw them ‘tax free’ after 90 days to use for your down payment/closing costs.  Once you receive your tax refund, you can then pay off those closing costs you incurred, make a prepayment on that mortgage or re invest those dollars any way you choose.

Here’s a great article to explain using RRSPs for down payment by the Edmonton Sun on January 14, 2013

Today, about 50% of first time homebuyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.

To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You’ll also need a signed agreement to buy a qualifying home.

Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $25,000 for a down payment — and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount — you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.

The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.

While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your mortgage specialist whether this strategy makes sense for you, given your personal financial situation.

For more information, visit Canada Customs & Revenue Agency Website at www.cra.gc.caand search Home Buyers’ Plan (HBP).

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