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Financial opinion wanted


Vanisleryan

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Here's the situation. ...I am 39 and live in Victoria and love living here. However I hate renting and want to buy a home for my family of 4. Houses are increasingly expensive here so saving up is an endless battle. But still Id never move.

 

Here's the thing...last May I started self directing my rrsps....I started with 28k and turned into 120k at this moment. I feel very fortunate to have done so and I am mostly holding cash now as most of my investments were pot stocks and I sold all of them days before legislation which proved to be a great decision.  Id easily be down 30 to 40k right now had I held. So basically easy come easy go.

 

Lately Ive been considering cash out my rrsps to pay off about 30k in debt and be left with 40k plus 30k in savings to use as a down payment.  Having no debt and a good size down payment would be great position to enter the market. Or cashing out half and being still left with 100% return year to date.

 

What I want to know is opinions on whether or not this would be a terrible decision or not that bad considering the gratification it would give me and my family to buy a home?  I would pay about 40k in penalties and taxes on the full amount or 20k on half. 

 

Side note...I do not qualify for first time home buyerswithdrawal. 

 

Thoughts....

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2 minutes ago, Vanisleryan said:

Here's the situation. ...I am 39 and live in Victoria and love living here. However I hate renting and want to buy a home for my family of 4. Houses are increasingly expensive here so saving up is an endless battle. But still Id never move.

 

Here's the thing...last May I started self directing my rrsps....I started with 28k and turned into 120k at this moment. I feel very fortunate to have done so and I am mostly holding cash now as most of my investments were pot stocks and I sold all of them days before legislation which proved to be a great decision.  Id easily be down 30 to 40k right now had I held. So basically easy come easy go.

 

Lately Ive been considering cash out my rrsps to pay off about 30k in debt and be left with 40k plus 30k in savings to use as a down payment.  Having no debt and a good size down payment would be great position to enter the market. Or cashing out half and being still left with 100% return year to date.

 

What I want to know is opinions on whether or not this would be a terrible decision or not that bad considering the gratification it would give me and my family to buy a home?  I would pay about 40k in penalties and taxes on the full amount or 20k on half. 

 

Side note...I do not qualify for first time home buyerswithdrawal. 

 

Thoughts....

You're absolutely right that if you can pay off the debt, do it ASAP because as long as you owe money, you will be paying interest. It is a common mistake to think that 'low interest' is a good thing - no it is not. I suppose it is better than high interest, but you still have to pay EXTRA money for money you're borrowing. That is a rip off.

 

From what you've written, I think you should try and take out the RRSPS as slowly as possible to avoid the tax. Do not take it out all at once; it is a bad idea and as you've observed, you'll be taxed money that you've been risking all this time.

 

Obviously this means you may or may not have the capital/downpayment to buy a home. That's fine. Make sure to use resources like TFSA (tax free savings accounts) and continue to save by renting.

 

You didn't mention if you have a job of some sort. Do you have the ability to do a mortgage? Depending on how much you're spending on a home, the mortgage might be a long-term amortization (20-25 years for example).

 

What type of home are you looking for? An apartment? A townhouse? A duplex? A house?

 

I should mention that I am not a real estate agent nor am I a mortgage consultant so my knowledge will be somewhat limited. I also have nothing to gain financially from this post or future posts.

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5 minutes ago, Dazzle said:

You're absolutely right that if you can pay off the debt, do it ASAP because as long as you owe money, you will be paying interest. It is a common mistake to think that 'low interest' is a good thing - no it is not. I suppose it is better than high interest, but you still have to pay EXTRA money for money you're borrowing. That is a rip off.

 

From what you've written, I think you should try and take out the RRSPS as slowly as possible to avoid the tax. Do not take it out all at once; it is a bad idea and as you've observed, you'll be taxed money that you've been risking all this time.

 

Obviously this means you may or may not have the capital/downpayment to buy a home. That's fine. Make sure to use resources like TFSA (tax free savings accounts) and continue to save by renting.

 

You didn't mention if you have a job of some sort. Do you have the ability to do a mortgage? Depending on how much you're spending on a home, the mortgage might be a long-term amortization (20-25 years for example).

 

What type of home are you looking for? An apartment? A townhouse? A duplex? A house?

 

I should mention that I am not a real estate agent nor am I a mortgage consultant so my knowledge will be somewhat limited. I also have nothing to gain financially from this post or future posts.

Yes I have a job and combined annual income around 110k...we are looking for something suitable for our family which puts us at abouy 500k price point for our search....Im leaning towards cashing out half. Your right about interest on loans. But its the loss on the unrealized gains on the money if it were left in rrsp I think would be alot more over the next 25 years....I do try to think about happiness over money and nothing would make me happier then getting my kids a back yard. 

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55 minutes ago, Vanisleryan said:

Here's the situation. ...I am 39 and live in Victoria and love living here. However I hate renting and want to buy a home for my family of 4. Houses are increasingly expensive here so saving up is an endless battle. But still Id never move.

 

Here's the thing...last May I started self directing my rrsps....I started with 28k and turned into 120k at this moment. I feel very fortunate to have done so and I am mostly holding cash now as most of my investments were pot stocks and I sold all of them days before legislation which proved to be a great decision.  Id easily be down 30 to 40k right now had I held. So basically easy come easy go.

 

Lately Ive been considering cash out my rrsps to pay off about 30k in debt and be left with 40k plus 30k in savings to use as a down payment.  Having no debt and a good size down payment would be great position to enter the market. Or cashing out half and being still left with 100% return year to date.

 

What I want to know is opinions on whether or not this would be a terrible decision or not that bad considering the gratification it would give me and my family to buy a home?  I would pay about 40k in penalties and taxes on the full amount or 20k on half. 

 

Side note...I do not qualify for first time home buyerswithdrawal. 

 

Thoughts....

being debt free will make you a hero with the bank, that is definitely the right thing to do, and will show you are a good risk. If you are close to the line on debt load with the new place the fact that you paid the debt before going for a mortgage will gain you a lot with the bank. 

 

for a 550,000 home you'd need 28k down payment so you should be fine that way. 

 

One thing I'd say is look at home type, and really decide if a detached home is that big a deal to you. I've owned a big apartment, and house and now a smaller condo, and frankly the home and big yard was over-rated for my family. 

 

I got a chance to spend about a month in Vic earlier this year and really liked the area around dockside green and saw a number of town homes that looked like great spots, to me anyway. Just a thought, sometimes detached homes seem like a "must" but turn out to be more work to maintain that you'd think. 

 

 

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30 minutes ago, Vanisleryan said:

Yes I have a job and combined annual income around 110k...we are looking for something suitable for our family which puts us at abouy 500k price point for our search....Im leaning towards cashing out half. Your right about interest on loans. But its the loss on the unrealized gains on the money if it were left in rrsp I think would be alot more over the next 25 years....I do try to think about happiness over money and nothing would make me happier then getting my kids a back yard. 

So combined annual income means each person is getting 50-60 k. You can't use all your income to borrow money. It's not how it works. Banks like to drag out your payments because of interest. Remember how I said that you should get yourself out of debt ASAP? Well you need to take the necessary evil by going into debt. If you don't have the capital (let's face it - most people don't), you NEED to borrow money from somewhere.

 

So with 50 k plus you have a stable job, you SHOULD be able to get some kind of a mortgage. Did you actually get your mortgage sorted out with the bank or are you just speculating that you can borrow that much? Make sure to get your ducks in a row first if you want to be in position to buy.

 

Let's assume that everything is sorted and that you're capable of buying something for 500 k. There ARE houses at 500 k - but it depends on what area you want. Obviously you're not going to get a waterfront property with that, but as you said, you need to get something with a bigger lot for the kids. You've gotta compromise somewhere. Better area = small lot/smaller place or go farther away and get a big lot. You need to decide what the priorities are. Make sure you take into account travel and convenience.

 

I still think that RRSP should be taken out at a slow rate as opposed to all at once.

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Seek professional advice.  This should be part of a comprehensive financial plan.  I would suggest an accountant or certified financial planner who's fees are not commission based.  Ask around for recommendations.

 

Cashing RRSP's, since you're no longer qualifying for the first time home buyers plan, means taking all that money into income and that will be at your marginal rate which will be much higher than the rate you're paying on your present income.

 

The Victoria real estate market is hot hot hot. So be careful.  Make sure you don't buy into something that is too expensive.  Being house poor sucks.  The good news is that as long as interest rates don't go up, you're effective rent will not.

 

Other things to consider budget wise is obviously maintenance and property taxes.  It's worth it to get your new place inspected by a certified home inspector so you don't have any very expensive surprises.  Also, your lender may insist that you buy life insurance to cover the amount of your mortgage.   

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I'd never tell another person what to do with their money,  but what I can say from recent experience is that the housing market is not going to get less expensive in the near future where you are residing. Either buy now or pay more for the exact same property in 6mo/1year.

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3 minutes ago, Fanuck said:

I'd never tell another person what to do with their money,  but what I can say from recent experience is that the housing market is not going to get less expensive in the near future where you are residing. Either buy now or pay more for the exact same property in 6mo/1year.

he's young enough to build that RRSP back up, but once the home market is out of reach there's really not much one can do but move. Or continue to rent, thats not the worst thing either assuming that doesn't get crazy too. 

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Whatever you do, cashing out RSP should be the absolutely LAST thing you should do.

 

Talk to your banker or better yet, talk to a financial planner about your options. Maybe a consolidation loan of some sort secured by other assets you may have? An expert will help you with any options you may have.

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Sure, you'd lose future gains in RRSP's but aren't you losing money down the rent hole?  I'd think the equity you'd be building into owning a property would be outweigh the losses in RRSP's.  Could be wrong, but kind of how I look at it.

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Buy now bro.  The island like anywhere won't get cheaper.  

 

You could get a er a brand new house in sooke or Campbell right bet or can mbetland for 500k and most new homes are built with one or two bedroom suites you could use a mortgage helper.

 

i prefer older homes with big yards and trees but I was jusat giving you an example of the potential out there and the built in suites are a great idea to keep that mortgage manageable.  The rental market ridiculously strong island wide. 

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20 minutes ago, riffraff said:

Buy now bro.  The island like anywhere won't get cheaper.  

 

You could get a er a brand new house in sooke or Campbell right bet or can mbetland for 500k and most new homes are built with one or two bedroom suites you could use a mortgage helper.

 

i prefer older homes with big yards and trees but I was jusat giving you an example of the potential out there and the built in suites are a great idea to keep that mortgage manageable.  The rental market ridiculously strong island wide. 

 

thats a good point on rentals, if he does go for an older home there's always the option of a mortgage helper rental with a basement suite e.g., and use that to either pay down the mortgage faster or put $ back in the RRSP. 

 

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The only thing I have to say is - forced pay-back of the RRSP's I gutted for my down payment is annoying, but I'm happy we bought a home.

You shouldn't have to pay any penalties so long as the amounts you pull from your RRSP's are for a home and you pay it all back in 11yrs ( incl.1st yr grace period).

 

Edit- "Shouldn't" as in I didn't pay a penalty, just forced repayment.

 

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Not a fan of homebuyers plan or rrsps. If you can find another investment vehicle and in this case a home go for it. 

 

Clear your debts first, try finding a house where your mortgage is similar to the amount your paying for rent (not sure if possible with house prices). 

 

If you were saving with the same rental rate, continue to do so, pay off the mortgage sooner or upgrade or invest within self directed tfsa as you seemed to have had success with that before. 

 

/advice from someone who doesnt know $&!#

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