Buyer Programs and Government Tax Incentives. How Do They Help Me?

We have all seen the headlines, “Canada’s Economic Action Plan Offers Incentives for Homeownership” and so on.  Neat.  The government will help me buy a house, you say.  While it is a good time to be a first time home buyer – you still need to make sure that the steps that you take to home ownership are the right ones for you and your family’s situation.

Let us begin with the government plan that we are most familiar with:

The HOME BUYERS’ PLAN (HBP).  This program is for the benefit of qualifying first time home buyers only, or for a related person with a disability.  You can withdraw funds to buy or build a qualifying home once you have entered into an official agreement of purchase, and you must occupy that home within one year of your withdrawal.  In 2009 the government will now expand this program to a maximum RRSP withdrawal of $25,000 per purchaser.  This is a tax-free withdrawal, that has the added requirement of repayment, during a 15 year period.  To benefit from the tax-free option you must have held these RRSP investments for more than 3 months prior to your withdrawal date.  Neat!  Now you have the down payment that you need to buy your first home.

For some people, withdrawing their funds from their RRSP’s and paying this balance back in 15 years will be “easy as pie”, and will make good financial sense.  For other people, they will make the choice to hold onto their initial RRSP investments and not touch them.  They know that the value of an RRSP invested early enough will reap a far larger reward down the road, with the added value of compound interest.  Invest in RRSP’s when you are young, for only the first few years, and do not touch these investments until you retire… and you will end up with a lot more money for a lot less financial effort.  The longer you wait in years, to start investing in your RRSP’s, the more money you will be forced to commit to investing up front, to reach your retirement goals.

Which choice is right for you?  Well, only you can decide that one.  Start your Financial Family Plan and start asking each other the important questions.  How much income do we each bring in? (gross/net, support, baby-bonuses etc.)  How much debt do we each have?  (cars, credit cards, student loans, other)  What is our current monthly budget?  (track everything that you spend for one month, and divide once yearly payments by 12) Will one of us be “not working” for a time in the future? (maternity leave, school/training, stay at home parent etc.)  Can we live off of one income, and commit the second one to monthly RRSP (retirement), RESP (education) investments, mortgage payment options (bi-weekly frequency, annual top-offs/downpays etc.) and future savings for Home Maintenance, Emergencies and future Large Purchases?  How about savings for Family Vacation and Gifts? (Birthdays, Seasonal Holidays etc.)

Gather all of this information together and sit down together and discuss it.  Is homeownership right for us at this time?  If not now – when?  (set an actual goal date and mark it on the calendar)  How much are we comfortable spending right now (per month) on a mortgage payment (your current rent), taxes, heat, electricity, water, home insurance?  How much do we spend per month on non-housing things? (food, fun, clothing, sports/clubs, transportation, car insurance/maintenance/gas)  Are there things that we could trim off of our current budget? (to increase your monthly savings to your future down payment fund, or to eliminate current debt faster?)

So set a date with your family (actually mark it on the calendar), to plan for your family’s financial future.  You will be amazed when you find out what you are really spending each month/year.  Knowledge is power.  If you want to own your first home and stop paying “the man” - then start an action plan to do so.

Next post:  The First-Time Home Buyers’ Tax Credit (HBTC).  I hear that it will assist me with the costs associated with purchasing my new home!

For more information:
The Home Buyers’ Plan: www.cra-arc.gc.ca
A direct link to information on the HBP (active as of May 14, 2009) is:
The Home Buyers’ Plan (HBP)

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