ATTENTION FIRST TIME HOME BUYERS!!
Filing our 2011 income tax return is something most of us are glad to put off well into the New Year (spring anyone?). You may have contributed to an RSP over the year by instalments or conversely, making a RSP contribution maybe the last thing on your mind. If you are in your twenties or thirties (+) and are considering homeownership, you may not correlate RSPs with owning a home and accordingly may not budget to contribute to an RSP. We encourage you to check out the Government's Home Buyer's Plan now for as first time buyers you and a spouse or partner may qualify to borrow up to $25,000. tax free from your respective RSPs toward a down payment. (Note: in some cases, previous home owners may qualify.)
Contributions depend on earnings; it may take some time to accumulate enough room in your RSP to use the program to best advantage, so if homeownership is a goal, look to 'supersize your contribution". If you already have some money saved in an RSP and are ready to buy, the program may allow you to increase your down payment over the 20% minimum required to forgo the cost of default insurance premiums. A larger down payment will obviously reduce your mortgage requirements. There are strings of course and the guidelines, conditions for participating and the withdrawal and repayment timelines are very specific. Go to the Canada Revenue Agency site to learn the details of the program.
So weigh the options and punch the numbers. Determine if you want to withdraw from your RSP and reduce its sheltered income earning capacity in favour of a smaller mortgage. At this point in time, mortgage rates are attractive, but on the flip side, investment return has been less than stellar.