In May 2020, I had the pleasure of helping two clients purchase their first home just outside of Hamilton. At the time, getting a down payment was the only challenge with their mortgage application. We were able to overcome this obstacle by getting an RRSP loan for their down payment. As first-time home buyers, both applicants could withdraw $35,000 from their RRSP toward their down payment “tax free” once the loan proceeds had been in their RRSP for 90 days.
I’ve talked and written about the strategy of using RRSP loans for down payment previously to reduce CMHC fees and for First Time Home Buyers to get a down payment faster here –
Now fast forwarding a year, the house purchased for $640,000 has increased in value to $810,000 and Jonathan received a better job offer from a company based in Ottawa. Both Jon and Jeanne wanted to turn their existing Hamilton property into a rental property and purchase a house in Ottawa.
Since they will be living in the new house in Ottawa as their primary residence, they are again eligible to put down 5%. Contrary to popular myth, you do not need to be a First Time Home Buyer to put down 5%, but the property does need to be your primary residence.
Jon and Jeanne were able to get the down payment by refinancing their Hamilton property. Since they have enough income (with the rental income added to their employment income) to qualify for the new purchase they were also able to buy a second property in Ottawa, while maintaining their existing property outside of Hamilton.
In just over a year, with the help of an RRSP loan, they were able to get into a house and see the value increase by $170,000. By refinancing they were able to access equity for a second down payment and payoff their original RRSP loan. In addition, by refinancing they could reduce the payment on their mortgage by moving to a lower interest rate and 30-year amortization and take advantage of additional tax-deductible interest on the larger mortgage amount.
The rental income will now cover their mortgages payment and property taxes on their rental property outside of Hamilton
If you are a first-time home buyer, looking for help to get into the market, including with help in getting a down payment please reach out. I have a lot of experience and different ways to help clients get on the path to home ownership, in addition to strategies to help homeowners reduce their taxes.