RRSP Home Buyer's Plan

[holden]

I have 2 questions regarding the RRSP HBP.

1) Is it a good idea to withdraw from my RRSP under the HBP if I already have enough savings for a 20% downpayment?
(If so, should I only use it to replace the savings I would have used for the 20% or to increase my downpayment past 20%)

2) Can I use the HBP for my second home purchase if
(a) my first home purchase was used as a rental property and never my principal residence
(b) I did not use the HBP on my first home purcase

[sputnik]

http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-11e.pdf

[holden]

Originally posted by sputnik
http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-11e.pdf

So according to that link the answer to #2 is yes.

You are not considered a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence.

[Zewind]

AS for your RRSP - you should talk with an advisor. If your RRSP is at a loss it may not be the best.

Since you past the 20% for CMHC and thinking out putting more down, it become what you would like your mortgage payment to be.

[krazykhoja]

As stated above yes you are eligible for the HBP since your first house was not your primary residence.

As for using the HBP if you have 20% down, it really depends on how your RSP is doing, if you want the smaller mortgage payment etc. What amount is in the RSP that you are thinking of withdrawing? If it is a smaller amount I would likely say to leave it in the RSP, but if it's closer to the $25k max that you can withdraw then see how it affects your mortgage payment and compare the savings vs the loss of (estimated) interest in the time the money is out of the RSP.

[tch7]

1) Depends on your exact situation & risk tolerance. I'm in that position and have been looking into it recently. Here are my conclusions on the possible options:

Option 1: Use HBP, >20% downpayment - You're saving a known amount of interest (eg. ~3.5% of 25k) on your mortgage by making a downpayment larger than 20%. You're also decreasing your monthly payments. Downside is that you're potentially losing out on gains by not leaving it invested in your RRSP, depending what your allocations are like.

Option 2: Don't use HBP, 20% downpayment. Leave the money in your RRSP and hope for a return better than your mortgage interest rate. Historically you'd be able to achieve a better return than what current interest rates are sitting at, but there's always the risk that your investments lose value. The other downside is that you've lost your opportunity to withdraw from your RRSP penalty-free.

Option 3: Use HBP, 20% downpayment, replenish other accounts. This is one of the only times you can get money out of your RRSP without penalty, so if you expect you'll need some cash in the near future for anything, this is a good option.

In my case, I'm depleting my TFSA for the 20% downpayment & related expenses. I'll then probably use the HBP to effectively transfer my RRSP funds into the TFSA and reinvest it. That way I can still get the same tax-free growth, but won't be penalized if I unexpectedly need to make use of those funds in the next few years (eg. interest rates go up to 6%+, so I opt to make a prepayment).