BMO Financial Tip of the Week: Use Your RRSP to Help Make the Down Payment on Your First Home
TORONTO, ONTARIO--(Marketwire - April 11, 2012) - As part of BMO Financial Group's ongoing commitment to financial literacy and 'Making Money Make Sense' for Canadians, BMO is releasing a financial tip every week in 2012.
BMO's Financial Tip of the Week: Use your RRSP to help make the down payment on your first home
The down payment is a lump sum you are required to contribute to your home's purchase price. Depending on the amount, a mortgage is classified as either "conventional" (a down payment of 20 per cent or more) or "high ratio" (a down payment of less than 20 per cent).
One way to come up with a bigger down payment is by using your RRSP savings, under Canada's Revenue Agency's home Buyer's Plan. As a first-time homebuyer, you are eligible to make a withdrawal up to $25,000 from your RRSP, tax-free; if your spouse qualifies, he or she may do the same, for a combined total of $50,000.
You have up to 60 days, after the second year, following the withdrawal from your RRSP to make your first repayment. If you repay the total amount withdrawn within 15 years, there will be no tax payable.
"If you are able to provide a bigger down payment, it's a significant way of helping you pay less interest over the life of your mortgage. Also, with a down payment of at least 20 per cent, you avoid paying mortgage default insurance," said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal.
Ms. Archdekin added that Canadians should be considering the benefits of choosing a 25-year amortization as a way to decrease total interest costs and to begin building home equity sooner.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $538 billion as at January 31, 2012, and more than 47,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.
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