While you may not think “home ownership” when you think of retirement savings, there are many links between the two.
Given that we are in the throes of RRSP season (this year’s contribution deadline is February 29, 2016), it is an opportune time to talk about investing and to reflect back on some of urbaneer’s musings and helpful facts when it comes to home ownership, investing, and your Registered Retirement Savings Plan (RRSPs). Not fully informed on how RRSP's work? Here's The Globe and Mail's A millennial Primer On RRSPs, And Should You Contribute To One?
Stocks Versus Locks
For most, your home is not just shelter and a spot for personal expression; it is a shrewd part of an overall investment strategy, with an eye towards long term investing. The stock markets have seen their share of turmoil already this year, which makes the slow and steady pace of bricks and mortar appealing, especially in a city where the market is robust, like Toronto.
However, it is important to make sure that your investment objectives line up with all of the investments that you hold – your property being one of them. Don’t forget that your home (and the mortgage that you hold against it) is part of your overall investment portfolio, which you may be using to fund your retirement and/or long term savings. We recommend reading our recent Dear urbaneer post called “Dear urbaneer: Is It Better To Invest In Stocks Or Toronto Real Estate?”
Home Buyer’s Plan
Very commonly, especially in the City of Toronto where housing prices are continuing to push their way skyward, the bounds of affordability are stretched and home buyers are turning towards alternative savings vehicles like RRSPs to fund their down payments.
Home buyers are allowed to take out up to $25,000 (that means $50,000 per couple) per calendar year to use as part of the Home Buyer’s Plan.
There are pros and cons with using money you’ve earmarked for the long term (i.e. RRSP savings) to meet your short term objectives. The two, however, are not mutually exclusive. In fact, in employing a prudent, well-researched strategy, your long term savings and short term investing can be completely symbiotic. Check out out these pros and cons in recent Dear urbaneer post: “Dear urbaneer: Should I Use My RRSP As A Down Payment?”
The Down Payment Dilemma
Speaking of finding different ways to source out a down payment, this is likely to become the new reality for more home buyers as minimum down payments are increasing. On February 15, 2016 new rules introduced by the Federal Government take effect. CMHC will now require a down payment of 10 percent on the portion of mortgages over $500,000. The 5 percent sub $500,000 rule will remain. When you consider that the average home selling price in January in Toronto was $631,092, these new rules could impact a number of people.
These rules have been introduced in an effort to cool a market that some perceive as overheating and to reduce the vulnerabilities that come with debt risk. However, some may view this as yet another (albeit benevolent) barrier to home ownership: the road blocks of affordability.
We recommend reading a Dear urbaneer post called “Should I Max Out My House Hunting Budget With CMHC Mortgage Loan Insurance?”
Your House, The Investment
While property itself is not eligible to be held within your RRSP, you are allowed to hold a mortgage against a property in a self-directed RRSP. There are a lot of rules, regulations and fees around this. Here is a great Moneysense article called “Loan Yourself A Mortgage.” explaining the ins and outs. Essentially, you need a hefty sum in cash in a self-directed RRSP and a mortgage-free home (or a home with at least 50 percent equity). Under a regular mortgage, you pay payments monthly to the bank. Under an RRSP mortgage, you essentially are paying the mortgage payment to yourself, contributing back into the RRSP. You are allowed to deduct the loan interest, which in theory will generate a tax refund.
Have you considered that your home is part of an investment portfolio, that can be part of a viable savings strategy? At urbaneer, we are not only highly educated and experienced in all things housing – including our love for unique urban spaces – but we are aware of all of the economic factors, tools and influences that will figure into your home buying and home owning experience.
Please know we’re here to help!
~ Steven and the urbaneer team
earn you trust, then your business
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-8000
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