I've been filing my taxes electronically for the past few years with Ufile.ca and Netfile.. so quick and easy!
Can't wait to get my refund

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release yourself ... it's a big sky!

I mail my accountant a pile of receipts, sheets and sh-t, pay him $75, and he does everything for me (well more to that, we still call each other).

No stress..... and that's worth $75 in therapy alone.

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quote:

Originally posted by Pettiscool yea but i dont have any debt....and i just thought of doing this in the last week, so i woulda missed out on some real money, either way, i got some "free" money anyways, how come u never got back to me about mortgage talk?

whoops...replying tonight

I guess what I was saying was that you can get the refund at tax time, or you could have reduced the tax you pay on every cheque and immediately invested it instead of having to wait a year...compounded interest is a good thing

Jem, you're right...if you know that your tuition, for example, is going to net you a good 3k return, then have your employer take less tax off of each cheque...that's $250/month IN YOUR POCKET NOW. Drop that into an RRSP or other investment right away, and by the time tax time rolls around, you've earned some interest on that money instead of essentially lending it to the gov't for free.

Personally, I'm 100% against using one's RSP as a loan for a down payment on a house.

By using an RSP as a down-payment loan you lose the time value of money - which is the major contributing factor to the end balance.

Do the math on a 25 year vs. 35 year compounding principle and you'll find that the additional 10 years provides nearly 3X great balance (it doubles in 7 years @ 10%, so just under triples in 10 years @ 10%).

With borrowing cheap right now and the ability to do do ultra-high ratio (sometimes 100%) mortgages - the depletion of the RSP costs more than the mortgage interest reduction (by having a down payment).

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- rabbit.joker [funny¿rabbit] | www.rabbitjoker.com |www.ddtt.org

Dark Dirty Tech Tribal. | Hands in air (trance) and feet on the floor (house).

Last edited by rabbitjoker on Mar-01-2006 at 02:38

quote:

Originally posted by rabbitjoker By using an RSP as a down-payment loan you loose the time value of money - which is the major contributing factor to the end balance.

Nothing worse than loose $ !

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quote:

Originally posted by Swamper Nothing worse than loose $

Loose lips, sink ships.

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- rabbit.joker [funny¿rabbit] | www.rabbitjoker.com |www.ddtt.org

Dark Dirty Tech Tribal. | Hands in air (trance) and feet on the floor (house).

quote:

Originally posted by rabbitjoker Personally, I'm 100% against using one's RSP as a loan for a down payment on a house. By using an RSP as a down-payment loan you lose the time value of money - which is the major contributing factor to the end balance. Do the math on a 25 year vs. 35 year compounding principle and you'll find that the additional 10 years provides nearly 3X great balance (it doubles in 7 years @ 10%, so just under triples in 10 years @ 10%). With borrowing cheap right now and the ability to do do ultra-high ratio (sometimes 100%) mortgages - the depletion of the RSP costs more than the mortgage interest reduction (by having a down payment).

hmmm...I see what you're saying with losing the time value of your RRSP money, but that assuming 10% returns EVERY YEAR on your RRSP, which is ambitious, no?

The time value is also tied into how close you are to retirment, while your mortgage amortization is what it is...whether you're 20 or 50. So I think that time value matters more the younger you are?

There's a "time value" (kind of in a reverse sense) with mortgages too, right? it's being amortized over a long period of time. That extra 20k you put down is saving you a LOT more than 20k by the time it's paid off, especially when rates are not this low. Yes, while interest rates are low, perhaps not as big an issue...but I don't have a crystal ball to see where rates will be 10+ years from now.

high ratio mortgages...fine for people with very stable employment/income in a stable real estate market. If you work in an industry where you could be laid off, bought out, etc. or if you're in an area with flat (or even declining) real estate values, I'd want *at least* 10% down. What happens if the market takes a bit of a downturn and your mortgage is now equal to, or greater than!) the value of your home?

High ratio mortgages, while they do help people get into a home faster, were developed to protect lenders, right? Your CMHC premium does NOTHING for you...it protects the bank in the event of default. The less you put down, the more likely you are to default (stats show).

if you wait and save vs. buying now by borrowing from the RRSP, did your RRSP interest outpace the increased cost of real estate where your buying? Many major cities have seen double digit real estate % increases, right? I just saw a pre-construction condo in Toronto jump from 199k to 264k in *less than two years*...that's sick.

I dunno...I could be wrong...but I think it's a bit more complex (?)

quote:

Originally posted by rabbitjoker Personally, I'm 100% against using one's RSP as a loan for a down payment on a house. By using an RSP as a down-payment loan you lose the time value of money - which is the major contributing factor to the end balance. Do the math on a 25 year vs. 35 year compounding principle and you'll find that the additional 10 years provides nearly 3X great balance (it doubles in 7 years @ 10%, so just under triples in 10 years @ 10%). With borrowing cheap right now and the ability to do do ultra-high ratio (sometimes 100%) mortgages - the depletion of the RSP costs more than the mortgage interest reduction (by having a down payment).

Actually the repayment period is max 15 years. if you consider the long term effect of borrowing the extra money on 25 year mortgage and also the ability to NOT pay the interest on the money that would be exempt from the loan, you will see that you will most likely be in a better situation. Also, this loan may allow you to get a regular mortgage and not have to pay the cmhc fee.

quote:

Originally posted by MarkT hmmm...I see what you're saying with losing the time value of your RRSP money, but that assuming 10% returns EVERY YEAR on your RRSP, which is ambitious, no?

No. The TSX has averaged 10.2% annual return over the last 50 years and the Dow30 has averaged 12.5% annual return anover the last 50 years.

___________________
- rabbit.joker [funny¿rabbit] | www.rabbitjoker.com |www.ddtt.org

Dark Dirty Tech Tribal. | Hands in air (trance) and feet on the floor (house).

quote:

Originally posted by MarkT There's a "time value" (kind of in a reverse sense) with mortgages too, right? it's being amortized over a long period of time. That extra 20k you put down is saving you a LOT more than 20k by the time it's paid off, especially when rates are not this low.

I've just run the numbers - here is what I get:

Assume 25 year mortgage, 7% average interest over term of mortgage.

A $200,000 mortgage nets out to $220,000 in interest payments over the term of the mortgage.

Borrowing $20k from an RSP to get $180,000 mortgage nets out to $198,000 in interest payments - a savings of $22,000 in interest payments.

$20,000 invested over a 25 year time horrizon (period of the mortgage), using TSX average annual return over the last 50 years (10%) nets out to $216,694.12.

Assume you take 10 years to pay back the RSP loan ($166/month in payments) - that leaves 15 years of compounding on the RSP - total balance at the end of the same 25 year period: $83,544.96 ($133k less than if you just left the money in the RSP).

Assume you take the full 15 years to pay back the RSP loan ($110/month in payments) - that leaves 10 years of compounding on the RSP - total bance at the end of the same 25 year priod: $51,874.85 ($165k less than if you just left the money in the RSP).

Even with a 5 year repayment (20 years compounding) on the RSP loan ($333/month in payments) the total RSP value is $134,550.00 - $82,000 LESS than if you just left the money in the RSP.

Even if one was to add in the CHMC premium - the $22,000 savings in interest on the mortgage is not worth the loss in growth on the RSP.

5 year loan repayment - $82,000 growth forgone
10 year loan repayment - $133k growth forgone
15 year loan repayment - $165k growth forgone

___________________
- rabbit.joker [funny¿rabbit] | www.rabbitjoker.com |www.ddtt.org

Dark Dirty Tech Tribal. | Hands in air (trance) and feet on the floor (house).

Last edited by rabbitjoker on Mar-01-2006 at 16:02

quote:

Originally posted by rabbitjoker I've just run the numbers - here is what I get: Assume 25 year mortgage, 7% average interest over term of mortgage. A $200,000 mortgage nets out to $220,000 in interest payments over the term of the mortgage. Borrowing $20k from an RSP to get $180,000 mortgage nets out to $198,000 in interest payments - a savings of $22,000 in interest payments. $20,000 invested over a 25 year time horrizon (period of the mortgage), using TSX average annual return over the last 50 years (10%) nets out to $216,694.12. Assume you take 10 years to pay back the RSP loan ($166/month in payments) - that leaves 15 years of compounding on the RSP - total balance at the end of the same 25 year period: $83,544.96 ($133k less than if you just left the money in the RSP). Assume you take the full 15 years to pay back the RSP loan ($110/month in payments) - that leaves 10 years of compounding on the RSP - total bance at the end of the same 25 year priod: $51,874.85 ($165k less than if you just left the money in the RSP). Even with a 5 year repayment (20 years compounding) on the RSP loan ($333/month in payments) the total RSP value is $134,550.00 - $82,000 LESS than if you just left the money in the RSP. Even if one was to add in the CHMC premium - the $22,000 savings in interest on the mortgage is not worth the loss in growth on the RSP. 5 year loan repayment - $82,000 growth forgone 10 year loan repayment - $133k growth forgone 15 year loan repayment - $165k growth forgone

your calculations are incomplete

First of all, the right way to look at this scenario is to compare the total equity you have (in Home + RRSP) at the end of a given period, assuming the same total amount of monthly household income is used in both scenarios to pay your mortgage, repay your HBP withdrawal and make "normal" RRSP contributions.

Second, of all, you have only looked at one time horizon (i.e., 25 years). You haven't considered the possibility of refinancing before that period, or that the house may be sold before that period, at which time the increased equity in your home by using the HBP can produce a financial gain when you negotiate a subsequent mortgage and cascade into future wealth accruals.

Thirdly, you are assuming you return 10% on your RRSP investments. Nobody uses that for financial planning. NOBODY. It is irresponsible and potentially a major liability issue if you actually work in any type of industry that deals with this sort of thing

Redo your calculations using a variety of return and mortgage rates, and look at different time horizons. You'll find the answer to be very different.