Should you withdraw from your RRSP to buy a house?
Young Canadians still have a good reason to withdraw from their retirement plan to buy a house: current prices.
With down payment being one of the most difficult hurdles for young homebuyers to overcome, scraping together enough for a down payment can be tough. Canada's Home Buyer's Plan allows a first-time purchase a one-time chance to withdraw up to $25,000 from their RRSPs, with the condition that the money be repaid in 15 years.
When the program first made headlines, it wasn't an overly popular choice. Due to home prices continuiously rising, this program is now attracting propesctive buyers from around the Country. Dipping into your RRSP can help a first0time home buyer avoid costly mortgage default insurance, which is required by Ottawa if you have a down payment of less than 20%. The insurance premium can run as high as 3.15% of the value of your loan if you only have 5% down payment, which is the minimum amount of equity required by a regulated financial institution.
The downside to this program is that you must be disciplined enough to understand that you need to pay back this loan to your RRSP. Repayments are due in the second year following the year you made the withdrawal. You typically pay 1/15 of the total amount you withdrew every year until the loan is repaid.
1/3 of first time home buyers never get around to paying it back. This results in the 1/15 amount being included in your income for that year.