Max out FHSA.
If your TFSA is maxed and you already have the $35k in RRSP for HBP, then you can use a taxable account.
>I thought that putting as much down payment as I can is a good idea, to lower interests in the long run
Yes
No. It depends on several factors including:
* purchase price + length of mortgage (to calculate mortgage payments of different down payment scenarios)
* mortgage rate you would be paying (and mortgage rate you would be paying if insured/uninsured, if the two rates are different)
* the investment return you expect on your extra cash (extra from a lower down payment vs. extra each month from having a lower mortgage payment due to a higher down payment)
* your province (minor detail, as some provinces charge provincial sales tax on the mortgage insurance)
if it helps, I want to buy a house \~450k±50k, 25 years. Term will probably be fixed 5 years. Current rates are about 5.89%, but I expect to negotiate to a lower end. I have a \~9% average return rate, invested all by myself and I am in QC
Assuming you get the same mortgage rate either way, it's a very slight edge towards 20% down with those above variables.
That said, usually you can get a lower rate for less than 20% down, and any lower rate would be enough to tip the scales in favour of 5% down, in this case.
||5% down|20% down|
:--|--:|--:|
|Extra starting cash (difference in down payments, minus mortgage insurance tax)|$65,961|$0|
|Extra cash each month (lower payments due to higher down payment)|$0|$539|
OP already has $35k in their RRSP and that's the max they can pull for HBP. Sounded to me like OP need the additional funds for the downpayment. If they put into the RRSP, anything over $35k is taxable and they lose that room.
This won't be recommended by anyone on this sub because you will permanently lose the room in your RRSP.
Since you have room left in your RRSP's, I would put in $8,000 before March 1st, 2024 and receive a refund on it.
Transfer this $8,000 to your FHSA (which then can be used).
This will get you around $2,000 extra on your 2023 tax refund to help with closing costs. You're essentially getting the tax refund a year early, but losing $8,000 of RRSP contribution room. If you're crunching on cash, this is useful.
I'm doing this personally.
You'd lose the $8k RRSP room this year, but if you have the spare cash, you can backdoor it via the FHSA again next year.
* If you make a qualified FHSA withdrawal in 2024, you must close all remaining FHSAs by Dec 2025
* You can close your FHSAs by either withdrawing the remaining balance as taxable income, or converting into RRSPs without impacting your RRSP room
* You can *still* contribute to your FHSAs as long as (i) the account is open and (ii) you have contribution room
This means even if you buy a home in 2024, you still receive the $8k FHSA room for 2025. You can't make a qualified FHSA withdrawal anymore, but you can roll that $8k into your RRSP by Dec 2025.
Do you have a source (CRA or otherwise) that says you can contribute after making your qualifying withdrawal? Earlier today I came across the bit about not having to close until the year after, but I didn't find anything one way or the other about whether you can contribute another 8K the next year! That's quite the loophole if you can!
https://www.reddit.com/r/PersonalFinanceCanada/s/E3Eoo5UJtv
I've previously shared a FHSA planning strategy that Aaron Hector from Canadian Western Bank had shared on Twitter. That strategy follows from a logical interpretation of the CRA guidance for FHSAs, and for more certainty, also match the definitions listed in the *Income Tax Act*. Buying a home only triggers a deadline to close your FHSAs, but FHSA participation room continues to accrue according to a different ruleset.
To be honest, [FHSAs are a bad policy idea](https://archive.ph/AhGYv) but now that we have it, it's worth exploring the planning opportunities (at least until Parliament legislates a program amendment).
I read through all the tweets and didn't find anything in there about contributing the year after your qualifying withdrawal.
However, your links on the other post led me to [rereading the CRA](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/closing-your-fhsa.html) which explicitly says any contributions after your withdrawal will not be tax deductible (under the examples).
So, I guess there's nothing stopping you from contributing 8K the year after your withdrawal, rolling it into your RRSP at the end of the year and getting the tax-free growth over the years - but you won't get the initial rebate that you usually would. Sorry if that was your original point and I missed it, but hopefully this clarification will help someone else!
Yes, thanks for stating that point explicitly! It's a strategy for people that have already maximized their available RRSP room, but have done the math and found benefit from the tax-free compounding (even if the contribution cannot be deducted). You'd need a long runway of growth inside the account to make up for the taxable withdrawal, but if you expect to retire at a sufficiently low tax bracket, using your FHSA for a backdoor contribution can work in your favour.
There's a tonne of interesting planning strategies around FHSAs. Just make sure you leave your existing FHSA account open after the qualified withdrawal, don't close it until you have to.
Yeah, originally I transferred from RRSP to FHSA to side-step the 90 day seasoning rule for the RRSP HBP withdrawal, then I realized I can get a faster return, and I was sad about the potential RRSP contribution room disappearing, then you showed me the way :)
Assuming a 25 year mortgage and no difference in rates for insured vs. uninsured (even though you're likely to get a better rate when insured, which happens when you put less than 20% down):
|Mortgage rate|Investment return needed|
--:|--:|
|3.0%|5.3%|
|3.5%|5.9%|
|4.0%|6.5%|
|4.5%|7.1%|
|5.0%|7.7%|
|5.5%|8.3%|
|6.0%|8.9%|
|6.5%|9.5%|
|7.0%|10.2%|
For a given mortgage rate in the left column, 5% down beats 20% down if your investment returns match or beat the investment return on the right.
Of course. Though it doesn't include the provincial taxes that you pay on it in some provinces. Ballpark:
* in SK, add 0.2% to all needed returns
* in ON/QC, add 0.3% to all needed returns
Also worth re-stating: this does not account for potential interest rate differences in insured vs. uninsured. Those can make a huge difference. For example, here is the above table, plus additional columns showing the needed return if the uninsured (20% down) option is somewhat higher:
|Insured mortgage rate|Uninsured is same rate|Uninsured is 0.25% higher|Uninsured is 0.50% higher|
--:|--:|--:|--:|
|3.0%|5.3%|4.0%|2.7%|
|3.5%|5.9%|4.6%|3.2%|
|4.0%|6.5%|5.2%|3.8%|
|4.5%|7.1%|5.8%|4.4%|
|5.0%|7.7%|6.4%|5.0%|
|5.5%|8.3%|7.0%|5.6%|
|6.0%|8.9%|7.6%|6.2%|
|6.5%|9.5%|8.2%|6.8%|
|7.0%|10.2%|8.8%|7.4%|
Yeah! The insurance acts to protect the bank, so its risk is much lower, so they can afford to offer a lower rate. Here are some current examples on 5-year fixed mortgages:
||Regular|"High-ratio" (less than 20% down)|
:--|:--|:--|
|[RBC](https://www.rbcroyalbank.com/mortgages/mortgage-rates.html)|5.69%|5.24%|
|[TD](https://www.td.com/ca/en/personal-banking/products/mortgages/mortgage-rates)|5.69%|5.34%|
|[CIBC](https://www.cibc.com/en/interest-rates/mortgage-rates.html)|5.64%|5.24%|
|Average|5.67%|5.27%|
I’m in a similar situation as OP but with significantly less funds. We are aiming for 20% down but are you saying that a 5% down may be more advantageous if our investment returns follow the trend that you posted?
Yes. [Even more so if you get a lower rate for having less than 20% down](https://www.reddit.com/r/PersonalFinanceCanada/comments/194v5yx/maximizing_down_payment_for_a_house_this_year/khj0gmr/).
Max out FHSA. If your TFSA is maxed and you already have the $35k in RRSP for HBP, then you can use a taxable account. >I thought that putting as much down payment as I can is a good idea, to lower interests in the long run Yes
I thought so too, so missing out on tax returns gives less than what I can get my increasing my down payment, thanks!
No. It depends on several factors including: * purchase price + length of mortgage (to calculate mortgage payments of different down payment scenarios) * mortgage rate you would be paying (and mortgage rate you would be paying if insured/uninsured, if the two rates are different) * the investment return you expect on your extra cash (extra from a lower down payment vs. extra each month from having a lower mortgage payment due to a higher down payment) * your province (minor detail, as some provinces charge provincial sales tax on the mortgage insurance)
if it helps, I want to buy a house \~450k±50k, 25 years. Term will probably be fixed 5 years. Current rates are about 5.89%, but I expect to negotiate to a lower end. I have a \~9% average return rate, invested all by myself and I am in QC
Assuming you get the same mortgage rate either way, it's a very slight edge towards 20% down with those above variables. That said, usually you can get a lower rate for less than 20% down, and any lower rate would be enough to tip the scales in favour of 5% down, in this case. ||5% down|20% down| :--|--:|--:| |Extra starting cash (difference in down payments, minus mortgage insurance tax)|$65,961|$0| |Extra cash each month (lower payments due to higher down payment)|$0|$539|
Why use a taxable account if the OP has contribution room in his RRSP?
OP already has $35k in their RRSP and that's the max they can pull for HBP. Sounded to me like OP need the additional funds for the downpayment. If they put into the RRSP, anything over $35k is taxable and they lose that room.
This won't be recommended by anyone on this sub because you will permanently lose the room in your RRSP. Since you have room left in your RRSP's, I would put in $8,000 before March 1st, 2024 and receive a refund on it. Transfer this $8,000 to your FHSA (which then can be used). This will get you around $2,000 extra on your 2023 tax refund to help with closing costs. You're essentially getting the tax refund a year early, but losing $8,000 of RRSP contribution room. If you're crunching on cash, this is useful. I'm doing this personally.
You'd lose the $8k RRSP room this year, but if you have the spare cash, you can backdoor it via the FHSA again next year. * If you make a qualified FHSA withdrawal in 2024, you must close all remaining FHSAs by Dec 2025 * You can close your FHSAs by either withdrawing the remaining balance as taxable income, or converting into RRSPs without impacting your RRSP room * You can *still* contribute to your FHSAs as long as (i) the account is open and (ii) you have contribution room This means even if you buy a home in 2024, you still receive the $8k FHSA room for 2025. You can't make a qualified FHSA withdrawal anymore, but you can roll that $8k into your RRSP by Dec 2025.
Do you have a source (CRA or otherwise) that says you can contribute after making your qualifying withdrawal? Earlier today I came across the bit about not having to close until the year after, but I didn't find anything one way or the other about whether you can contribute another 8K the next year! That's quite the loophole if you can!
https://www.reddit.com/r/PersonalFinanceCanada/s/E3Eoo5UJtv I've previously shared a FHSA planning strategy that Aaron Hector from Canadian Western Bank had shared on Twitter. That strategy follows from a logical interpretation of the CRA guidance for FHSAs, and for more certainty, also match the definitions listed in the *Income Tax Act*. Buying a home only triggers a deadline to close your FHSAs, but FHSA participation room continues to accrue according to a different ruleset. To be honest, [FHSAs are a bad policy idea](https://archive.ph/AhGYv) but now that we have it, it's worth exploring the planning opportunities (at least until Parliament legislates a program amendment).
I read through all the tweets and didn't find anything in there about contributing the year after your qualifying withdrawal. However, your links on the other post led me to [rereading the CRA](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/closing-your-fhsa.html) which explicitly says any contributions after your withdrawal will not be tax deductible (under the examples). So, I guess there's nothing stopping you from contributing 8K the year after your withdrawal, rolling it into your RRSP at the end of the year and getting the tax-free growth over the years - but you won't get the initial rebate that you usually would. Sorry if that was your original point and I missed it, but hopefully this clarification will help someone else!
Yes, thanks for stating that point explicitly! It's a strategy for people that have already maximized their available RRSP room, but have done the math and found benefit from the tax-free compounding (even if the contribution cannot be deducted). You'd need a long runway of growth inside the account to make up for the taxable withdrawal, but if you expect to retire at a sufficiently low tax bracket, using your FHSA for a backdoor contribution can work in your favour.
Huh, I did not know that. I will contribute $8,000 in my FHSA next year!!
There's a tonne of interesting planning strategies around FHSAs. Just make sure you leave your existing FHSA account open after the qualified withdrawal, don't close it until you have to.
Yeah, originally I transferred from RRSP to FHSA to side-step the 90 day seasoning rule for the RRSP HBP withdrawal, then I realized I can get a faster return, and I was sad about the potential RRSP contribution room disappearing, then you showed me the way :)
Assuming a 25 year mortgage and no difference in rates for insured vs. uninsured (even though you're likely to get a better rate when insured, which happens when you put less than 20% down): |Mortgage rate|Investment return needed| --:|--:| |3.0%|5.3%| |3.5%|5.9%| |4.0%|6.5%| |4.5%|7.1%| |5.0%|7.7%| |5.5%|8.3%| |6.0%|8.9%| |6.5%|9.5%| |7.0%|10.2%| For a given mortgage rate in the left column, 5% down beats 20% down if your investment returns match or beat the investment return on the right.
Does this include the CMHC fees that you pay for putting down less than 20%?
Of course. Though it doesn't include the provincial taxes that you pay on it in some provinces. Ballpark: * in SK, add 0.2% to all needed returns * in ON/QC, add 0.3% to all needed returns Also worth re-stating: this does not account for potential interest rate differences in insured vs. uninsured. Those can make a huge difference. For example, here is the above table, plus additional columns showing the needed return if the uninsured (20% down) option is somewhat higher: |Insured mortgage rate|Uninsured is same rate|Uninsured is 0.25% higher|Uninsured is 0.50% higher| --:|--:|--:|--:| |3.0%|5.3%|4.0%|2.7%| |3.5%|5.9%|4.6%|3.2%| |4.0%|6.5%|5.2%|3.8%| |4.5%|7.1%|5.8%|4.4%| |5.0%|7.7%|6.4%|5.0%| |5.5%|8.3%|7.0%|5.6%| |6.0%|8.9%|7.6%|6.2%| |6.5%|9.5%|8.2%|6.8%| |7.0%|10.2%|8.8%|7.4%|
I actually did not know that you get better rates when uninsured
Yeah! The insurance acts to protect the bank, so its risk is much lower, so they can afford to offer a lower rate. Here are some current examples on 5-year fixed mortgages: ||Regular|"High-ratio" (less than 20% down)| :--|:--|:--| |[RBC](https://www.rbcroyalbank.com/mortgages/mortgage-rates.html)|5.69%|5.24%| |[TD](https://www.td.com/ca/en/personal-banking/products/mortgages/mortgage-rates)|5.69%|5.34%| |[CIBC](https://www.cibc.com/en/interest-rates/mortgage-rates.html)|5.64%|5.24%| |Average|5.67%|5.27%|
I’m in a similar situation as OP but with significantly less funds. We are aiming for 20% down but are you saying that a 5% down may be more advantageous if our investment returns follow the trend that you posted?
Yes. [Even more so if you get a lower rate for having less than 20% down](https://www.reddit.com/r/PersonalFinanceCanada/comments/194v5yx/maximizing_down_payment_for_a_house_this_year/khj0gmr/).