If you are a first-time homebuyer or hope to be in the future, the best thing you can do is maximize the down payment you use from RRSPs – the Home Buyer’s Plan (HBP).
The plan allows you to use up to $25,000, tax-free, on the purchase of a
qualifying (meaning it’s a first home OR you and your spouse have not owned a home in the last five years) owner occupied residence. With this option, you reap the tax benefits of the RRSP deposit and get to use that money to buy your first home – RRSP down payment. Seems like a no brainer, right?
Did you also know that you can invest in Real Estate pools tax-free? The Financial Post has a great article about the various ways to use your RRSPs for Real Estate Investment.
“Real estate investment trusts (REITs) are RRSP-eligible investments that pool together income-generating real estate. Typically the pool includes residential, office, retail, industrial, self-storage, healthcare or hotel properties. REITs are a way for investors to invest indirectly in real estate that is managed by a professional team.”
If you want to get involved in the business of lending money, which can generate a phenomenal return, a MIC (Mortgage Investment Corporation) is a good option.
“REITs invest in the equity component of a real estate property. Their debt investment counterparts are known as mortgage investment corporations or MICs and enable investors to purchase a pool of mortgages paying interest income. Rather than investing in a single mortgage with a modest amount of money, MICs enable investors to be diversified among different mortgages, terms, geographies and sectors.”
Another option is to hold your own mortgage in your RRSP, effectively making you your own lender.
“For conservative investors, it can be an enticing option because the mortgage rate used is the posted rate, which guarantees you a much higher fixed return than you could otherwise earn on a GIC or high-quality bond. That said, it means you are borrowing at a higher rate – albeit from yourself – than you could otherwise borrow from a bank.
“One concern with holding your mortgage in your RRSP is that if you could otherwise borrow at a lower rate of interest and possibly invest at a higher rate of return in a balanced investment portfolio, you might be missing out twice. This is especially true at today’s low interest rates, in particular when you take into account the up-front and ongoing costs.”
Lots of options, besides using your RRSP for down payment, out there to explore and figure out which one is the right one for you. With mortgage rates low and Real Estate prices dropping, there isn’t a better time to buy.
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