You may be able to use your RRSP to buy your home
We're going to tell you how you may be able to use your RRSP for a downpayment or a mortgage. You can borrow cash from your RRSP for a downpayment, under Revenue Canada's Home Buyers' Plan. There are some rules:
* You can borrow from your RRSP if you are a first time home buyer; or if you haven't owned a home and lived in it as your provincial residence since January 1, 1995, and you've repaid any money that you borrowed from your RRSP before.
* You can't borrow more than $20,000 from your RRSP. But if you are buying a home with your spouse, each of you can borrow $20,000 from your RRSP.
* The house you are buying has to be located in Canada, and has to be your principal residence.
* You have to be a resident of Canada.
* You have to have signed an agreement to purchase before you can withdraw the money. If you withdraw money in 1999, your deal must close before October 1, 2000.
* You have to pay the amount you withdraw back into your RRSP within 15 years, by making payments of at least one-fifteenth of the total amount each year. If you miss a yearly payment, the amount is added to your income for tax purposes in that year.
Give yourself a loan
You may also be able to use your RRSP to give yourself a mortgage loan - but you can't give yourself special treatment:
* The mortgage has to be administered by a bank or trust company. The financial institution must administer the loan as though you as the lender and you as the borrower were total strangers. You will have to fill out a mortgage application, and if the institutions doesn't think you're a good credit risk, you'll be turned down. If you're accepted, you'll probably have to pay appraisal and mortgage set-up fees, and an annual mortgage administration fee.
* The mortgage rate and terms have to be similar to those available to anyone getting a mortgage from the financial institution. You can't give yourself a lower interest rate or an interest-only mortgage.
* The mortgage has to be insured, so there will be an insurance premium to pay.
When you make your mortgage payments, they go back into your RRSP. If you don't make the payments, the financial institution can sell your home or foreclose on it. If the house is sold, the proceeds of sale will be paid to your RRSP.
If the institution forecloses, your RRSP will become the owner of the home. But you're not allowed to own real property as an RRSP investment, so your RRSP would have to sell the home within a reasonable time, usually about one year.
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