Saturday, April 9, 2011

RRSP First Time Home Buyer's Plan

Just recently, I was getting my taxes done at a tax preparation company, and was discussing my RRSP with the employee there. I mentioned that I was planning on using the RRSP's first-time Home Buyer's Plan (HBP) in the next few years for a down-payment on a house. The employee also knew that I have a Tax-Free Savings Account, and politely told me that in his opinion, I should be using my TFSA instead of my RRSP to save for a house down-payment.

His reasoning was that the money I currently have in my RRSP would disappear when I make use of the HBP, and then I would be missing out on years of growth in that account until I fully paid back the balance. I gave this some thought, and while that fact is true, it's also true of the TFSA, or any other account I might decide to use. Money spent is money lost, which is money that can't grow because it's gone, no matter what account you hold it in. However, his recommendation to use a different account still merited some further reading.

After reading up on how the HBP works, I have decided that I will make a change of plans, and use an account other than my RRSP to save for a house down-payment. The HBP is essentially a loan that you owe to yourself, and that loan remains even, if you go bankrupt. While I don't plan on going bankrupt, it might still be too stressful to have that loan hanging over my head. Around the time I decide to buy a house, I will probably have just finished paying off my student loan. I know that a mortgage is also a loan, but I wouldn't want to have that extra HBP loan tacked on to me as well.

If I decide to use my TFSA or some other account to save for a down-payment, I would highly enjoy having the option and not the obligation to pay back the amount I withdraw. This also frees the money in my RRSP of dual purpose. The money I have in there currently will just stay in there and grow for the main purpose it's there: to save for retirement.