There is an interesting way for people with good incomes and unused RRSP contribution room to get a down payment, when they have no cash of their own. In effect, it's an interest free loan from the government. I'm assuming both husband and wife have marginal tax rates of 32% and unused RRSP contribution room of at least $25K each. This gives a best-case scenario; but the math can be done for other situations.
Here's how it works:
1. Both husband and wife go to friendly bank for RRSP loans of $25K each, with the first payment deferred for 120 days. They invest the money in short term savings.
2. Both husband and wife file tax returns, and receive total refunds of $16,000. This is the money for the down payment.
3. After 90 days but before 120 days, husband and wife enter into a contract to buy or build a qualifying home. They withdraw the money from their RRSPs; and use it to repay the loans.
4. Starting in the second year after the year of withdrawal from RRSP, husband and wife each need to contribute $1,667 to an RRSP for 15 years, for which no tax deduction is given. If no repayment is made, this amount is added to income and tax is payable.
The real cost to this is the difference in interest earned while the money is in the RRSP and the interest accumulated on the loan. The best timing is to initiate this in December, January or February; for a spring home purchase.
Here's how it works:
1. Both husband and wife go to friendly bank for RRSP loans of $25K each, with the first payment deferred for 120 days. They invest the money in short term savings.
2. Both husband and wife file tax returns, and receive total refunds of $16,000. This is the money for the down payment.
3. After 90 days but before 120 days, husband and wife enter into a contract to buy or build a qualifying home. They withdraw the money from their RRSPs; and use it to repay the loans.
4. Starting in the second year after the year of withdrawal from RRSP, husband and wife each need to contribute $1,667 to an RRSP for 15 years, for which no tax deduction is given. If no repayment is made, this amount is added to income and tax is payable.
The real cost to this is the difference in interest earned while the money is in the RRSP and the interest accumulated on the loan. The best timing is to initiate this in December, January or February; for a spring home purchase.