Home buying, down payments, HBP, oh my!

vonPoonBurGer

So I live in Montreal, Canada, and I'm thinking of buying a house. I have a decent down payment, I'm already pre-approved for a mortgage, financially I can definitely afford it, and over the long term paying off a mortgage would beat the hell out of flushing rent money away every month. It was recently suggested to me that I should consider putting my down payment into my RRSPs for 90 days, then withdraw it under the Home Buyer's Plan (which I definitely qualify for), and use those deductions this year and/or carry them forward to future years. Is this a crazy thing to do, or would I be crazy not to do it?

Here are my financial particulars:

• my contribution to RRSPs has been variable over past years, so I've got a lot of unused contributions, way more than the down payment
• my down payment is slightly less than the maximum you can withdraw under the HBP plan
• my wife is currently a PhD student, we file jointly (I do my own taxes) and we get tons of money back because we have two personal deductions but only a single income; she has significant income, but it's a non-taxable grant
• the sweet, sweet tax return gravy train is almost certainly going to come to a shuddering halt when we file in early 2011, because my wife will have graduated and started teaching in 2010, and thus will have significant taxable income

So my thinking is, I throw my down payment into my RRSPs, just in an RRSP savings account so the value can't possibly diminish. In 90 days at the earliest, I can withdraw the full down payment under the HBP. These are all the downsides I can think of to this:

• I can't put an offer in on a house if the closing date would be before that 90-day point, because the closing would happen and I wouldn't have a down payment in hand (the closing date is when I need the down payment, yes?)
• I have to repay the down payment / HBP loan amount into my RRSPs over the next 15 years
• It eats a big chunk of those unused RRSP contributions I've been carrying forward for years now

On the plus side, I'd have a crap-ton of deductions that I can use in future years, when I know my household income will be higher. It would give me incentive to set up regular RRSP contributions, rather than leaving money in my account where I'm liable to fritter it away. And as for those unused contributions it would consume, I don't come close to maxing out my contributions each year so that number is constantly growing anyway. It really seems to me like this would be a good way to get more work out of that down payment money. Can anyone see any gotchas to this that I've overlooked?

Richard M. Nixon

We recently bought a house in Ontario and used the HBP to do it, but we'd been putting money into RRSPs for a while beforehand. We didn't quite max out the $20k each (I'm pretty sure it's $20k each) but we took out a pile.

I guess it depends a lot on if you expect to find the place within the 90 days. I think if it were me and I had some solid leads on houses, I would stick the downpayment money in a savings account or similar where it is accessible but not available easily to your debit card (PC Financial's Interest First savings account is what we use. To get money out of it you have to wait 24 hours which means you'll be able to get it out for the closing but there'll be an extra step to stop you buying 7 TVs or whatever). It won't make any money but it's far more accessible and if you don't end up buying a house soon, you'll have the money available in case of an emergency. Once you've put it into your RRSP you really can't get it back out apart for downpayment purposes.

Keeping those RRSP deductions will also help you out a lot in 2011's tax year, it sounds like.

I believe you do need to have the downpayment money available on the closing date (and your bank will want proof that you have it, as well, despite your being pre-approved. We had to submit a couple months' worth of bank statements showing that we hadn't stolen it or whatever).

Good luck with the search. It's pretty exciting/terrifying.

Entriech

I only really see an advantage to this if you feel like over your entire life you will never make up the RRSP contribution room you currently have. You're planning on the money going to a down payment regardless, so growing it isn't as much of a concern, and as income tends to increase over time, that contribution room will be more valuable to you in future years as you make more money.

SatanIsMyMotor

Don't do it. Having just bought a house myself one of the biggest advantages I had was having a down payment that I could access at any time. What happens if you find the house of your dreams but lose it because you can't access your funds?

edit: One thing you could consider doing is making a smaller deduction from your RRSP but still paying the lion's share via your savings.