The first step is to dig out your last Tax Assessment form from Canada Customs and Revenue (you received this when you got your tax refund last spring) and check it to find out your allowable RRSP contribution as of right now.
Many people have several thousand dollars left that they can contribute because they haven’t topped up their contributions annually; some people have a lot more than that.
Let’s assume for a moment that a couple is planning to purchase a home and each of them can top up their RRSP by at least $25,000.
The next step is to arrange for an RRSP loan of $25,000 each. Pretty well everyone can qualify for this loan because the banks keep your RRSP investment (a GIC, for instance) in their bank, so it’s safe in their eyes.
You have a couple of choices. Take out this loan for a long term (three to 10 years), not because you’re going to have this loan for a long time, but because it will make your payments lower while you do have the loan.
Or… take it out with a short 6 – 12-month amortization and use it as an enforced savings program.
Pay down that loan as much as possible so that when you do withdraw the money from your RRSP you’ll have built up a good chunk of savings there!
When March 1st comes along, file your tax return right away and wait for the fat refund cheque to come in the mail or direct deposit into your bank account.
Let’s assume that you’re in a 40 per cent tax bracket. You should then get back approximately $10,000 each in tax refund based on reducing your taxable income by $25,000. This $10,000 each (total of $20,000) now becomes your down payment… don’t spend it!
Now here comes the fun part. Go out and purchase a home with a closing date of at least 90 days after you put your borrowed funds into your RRSP.
When you get to about 10 days to 2-weeks prior to the closing date for your home deal, instruct the bank to cash in your $25,000 worth of RRSPs each.
The person at the bank, of course, will say… “You’ve got a loan against it” and then you will say “Pay the loan off with the $25,000 I’m withdrawing.”
Following these steps carefully will leave you in the enviable position of having NO RRSP loan, $20K in your hand to use as your down payment (plus any equity you’ve built up by paying down the loan balance) and 15 years to repay the $50,000 that you withdrew from your RRSPs (about $3,333 per year).
We’ve created a free downloadable report that explains this entire process.
Go to FreeGovernmentMoneyReport.com to get your copy today.
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