Canadian RRSP filter: Does the Home Buyers Plan actually make sense? Can you crunch the numbers on my behalf?
So, Mr. Rattery and I are finally employed and starting to think adult thoughts. In the next two years we would like to buy a house. We would need to save $80,000 (at least) in order to make that happen in our market. Let's say that at this point we have $35,000 saved.
We have largely (but not entirely) neglected our RRSPs because a) we were underemployed for our 20s; b) we didn't need the tax savings; c) we are uncreative in our miserliness. Anyway, I want to make more money on our savings to speed up the process of home buying. At the same time, I want to set up actual retirement savings. I have been thinking of getting a mutual fund RRSP. What I don't know is whether I should dump a lot of money into it now (I can contribute up to $18,000 this year), or if I should deposit a small lump sum to start and set up modest monthly deposits.
This leads me to the Home Buyers Plan
. On the one hand, it would seem wise to dump as much as I can into this RRSP, then take it out a year or two from now to use for the down payment.
On the other hand, though, I can't help wondering what effect this would have on my long-term retirement savings. Won't I be losing a lot of compound interest over the 15 years I'm slowly paying that money back to the fund? Frankly, my retirement savings are more important to me than the house (even though my retirement savings can't provide me space for a sewing room). Will the "investment" that our house represents off-set these losses? Does it make more sense to dump money into a non-registered investment?
Confused. I haz it.
I've tried to get a straight answer from the several financial institutions I've called, but they're all really gung-ho on the HBP. I just want an honest assessment of the costs/benefits in this particular financial climate.
Any advice is most welcome.
**Note that I've oversimplified the savings goals. I've gone through all the calculators around and have determined that we could theoretically carry the mortgage for a house about $100,000 more expensive than we would ever
buy. We wouldn't throw all of our savings into our down payment and we know that we will need to save more than just the $80,000 to buy the house. Contingency plans, etc. We are wildly conservative when it comes to spending money.