RRSP, CMHC, WTF
June 6, 2010 6:00 PM Subscribe
I need to pay for my new house and anticipated Reno's. Canada's lending laws put a limit on the minimum down payment I need without penalty, and
the minimum I can take from my retirement savings without penalty. The two limits don't mesh for me! Help me decide the best way to patch together the money.
posted by Popular Ethics to Work & Money (18 answers total) 2 users marked this as a favorite
I apologize if this sounds too much like a freshman math assignment. Here are the loan details:
280 k$: House Sale Price
1.5 k$: Closing Costs:
20 k$: Anticipated Reno Costs, Next 18 months
301.5 k$: Total Costs
And here is the source of the conflict:
60.3 k$: Minimum required down payment without CMHC Insurance Cost (20% of "sale value")
50 k$: Our Maximum tax-free withdrawal from retirement savings (2 people)
So the question is, where do we come up with the missing 10.3 k$. I can think of several options, but despite an afternoon in front of a spreadsheet, I can't decide which makes the most amount of sense. We could:
A) Borrow 10.3 k$ from a line of credit (probably 1.5% higher interest rate than the mortgage), Add it to our 50 k$ savings for a down payment of 60.3 k$. Get a mortgage of 251.5 k$ with no insurance cost.
B) Borrow 27.5 k$ from a line of credit. Add 6 k$ to our 50 k$ of savings for a down payment of 56 k$. Get a mortgage of 224 k$ with no insurance cost. Pay the closing and reno costs with the remaining funds from the line of credit.
C) No line of credit. Withdraw 50 k$ of savings for down payment. Get a mortgage of 256.5 k$ (5 k% goes to cover the CMHC insurance premium).
D) No line of credit. Withdraw 65 k$ of retirement savings. Pay 5k$ of income tax on the 15 k$ worth that exceeds our maximum tax free withdrawal, leaving us with 60 k$ for down payment. Get a mortgage of 251.5 k$ with no insurance cost.
There are more variables too! We plan to pay a fixed amount a month to cover all loan costs, but we can choose whether to pay the line of credit down more quickly, or the mortgage, or both equally fast. We can also choose to have both loans at a fixed rate, or both at a floating rate, or one on each (the floating rates are about 2% lower now, but are predicted to catch up to the fixed in 2-3 years).
I have a hunch that most of these options amount to about the same thing, but the intervening laws are making the problem hurt my head more than it should. Are there any economist / accountant / finance mefites out there who are bored on a Sunday evening?