Using Your RRSPs For A Down Payment On Your New Home

I have come across a lot of people including my clients who are still unclear about the Registered Retirement Savings Plan (RRSP) for the purpose of buying a home. For those of you who are unaware the Revenue Canada calls this program the Home Buyer’s Plan. Not only is this popular with first-time homebuyers, but in my opinion, it is significantly underused.

RRSPs represent one of the only forms of forced savings – so why not use this method to come up with your new home down payment?

What is the First Time Home Buyer’s Plan?
The First-time Home Buyer's Plan (HBP) is a Federal Government initiative providing Canadian citizens the opportunity to withdraw up to $25,000 from personal RRSPs for buying or building a home in Canada. To qualify, applicants must not have directly, or indirectly, owned a residence within the past five years.

Under the HBP, qualifying withdrawals will not be included in annual income, and RRSP issuers will not withhold income tax from these withdrawn amounts. If you are jointly buying or building a home together with your spouse or other qualifying individual, each of you can withdraw up to $25,000. This means that three people buying together can withdraw up to $75,000 (3 X $25,000) collectively.

Are the Withdrawals Taxed?
Withdrawals that meet all of the Revenue Canada HBP conditions are not included in your income and therefore not taxed in the year they are withdrawn. The money that you withdraw has to have been in RRSPs for a minimum of 90 days before it can be withdrawn without tax liability. Through the program, you have the ability to withdraw the amount all at once or through a series of withdrawals not to exceed $25,000.

To withdraw these funds from your RRSPs, you must first have entered into a written agreement to buy or to build. You will also need to confirm that you will occupy the subject property as your personal residence. (Once you take occupancy there is no minimum period of time you are required to live there.)

When do you repay the amount?
Your commitment to the HBP is to repay the amount withdrawn within a 15 year time period. In each year, you will need to make the minimum contributions to your RRSPs equal to 1/15 of the withdrawn funds until the total amount is repaid. You will receive a HBP Statement of Accounts on your annual Notice of Assessment showing you the total HBP withdrawal, the amount you have repaid to date, your HBP balance, and the amount you should repay the following year. Your repayment starts the second year following your withdrawal, and you may repay any amount in excess of the minimum to reduce payments in later years. If you do not repay this amount, then that figure is added to your income for that year. There is no tax liability personally incurred when you make this payment back to your RRSP (at least not from the HBP).

After you move to your new home and start making payments back to your RRSPs, you have to designate the portion that you would like to go towards your HBP payment. Since your earnings will most likely increase as the years go by, it is important to try and pay back the amount you borrowed as quickly as possible. Not only does it give you the potential to get a higher tax deduction for your RRSP contribution but also allows your RRSP dollars to have more years of tax sheltered growth while in your RRSP.

Please keep in mind this is only an overview and do not substitute it for comprehensive tax and financial advice. If you do need further information you could consult a financial professional or I could refer you to one. A more in-depth review of the program can be found on Revenue Canada’s website – www.crc-arc.gc.ca or by calling 1-800-959-2221.

It has been a busy year in the housing market; make sure you make the right decision. Until next time.

Regards,
Zeenia Kola
Sales Representative with Re/Max Realty Specialists Inc., Brokerage
Email: zeenia@zeeniakola.com
Ph: 905-828-3434
Add: 2691 Credit Valley Rd, #101, Mississauga, L5M 7A1
Website: http://www.zeeniakola.com/
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Great News: Bank of Canada maintains overnight rate target at 1 per cent!!

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1%. The Bank Rate is correspondingly 1 1/% and the deposit rate is 3/4 %.

The global economic recovery is proceeding broadly in line with the Bank’s projection in its January Monetary Policy Report (MPR), although risks remain elevated. U.S. activity is solidifying and remains supported by stimulative fiscal and monetary policies. Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.

The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand. While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes. Business investment continues to expand rapidly as companies take advantage of stimulative financial conditions and respond to competitive imperatives. There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities. However, the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.

While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank's expectations. Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

Stay Posted: The next scheduled date for announcing the overnight rate target is 12 April,2011



Warm Regards,
Zeenia Kola
Sales Representative with Re/Max Realty Specialists Inc., Brokerage
Email: zeenia@zeeniakola.com
Ph: 905-828-3434
Add: 2691 Credit Valley Rd, #101, Mississauga, L5M 7A1
Website: http://www.zeeniakola.com/
Facebook Link

Third Time is a Charm: Bank of Canada Hikes Up Interest Rates Again

The Bank of Canada has announced today that it is raising its overnight rate by 25 basis points. That changes the overnight rate from 0.75% to 1%. This change in the overnight rate has a direct effect on the prime lending rate, which will now jump from 2.75% to 3.00%.

In recent weeks, many reports have come out projecting smaller than projected growth, although many top economists still believed that the Bank of Canada would increase the key rate. As outlined in the press release "the global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies".

Future forecasts for growth in Canada expect growth to be solid and business investment is expected to rise. From the press release, the Bank of Canada believes that the economic recovery will be more gradual than the previous Monetary Policy Report, which was released in July 2010, mainly in part due to the weakness in the United States.

Even amidst the report of slowing economic growth, the Bank of Canada determined that allowing a 25 basis point increase would still allow for stimulation, even though there may be some financial tightening. The increase in the prime rate is one key way that the Bank of Canada tries to control the inflation rate within the country, in order for it to stay around 2%.

This rate increase of 25 basis points is the third consecutive rate increase since June 1st, 2010. Canada was the first from the Group of Seven to begin increasing interest rates, and previous publications by the Bank of Canada predicted Canada to be leading the way in terms of the global economic recovery.

However, the Bank of Canada heeded in saying "any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook". Most economists have now tightened their forecasts for future rate increases.

Since the rate hike announcement at the policy meeting, the Canadian dollar has increased 1.09 cents, sitting at 0.9650 cents US by midday Wednesday. The Toronto Stock Exchange also felt some gains of about 0.2%.

The next scheduled date for the Bank of Canada to announce the overnight rate is scheduled for October 19, and an updated Monetary Policy Report will be released on October 20, 2010.

Current home owners with a variable mortgage are most likely wondering what this all means in terms of their existing loan. Variable rate mortgages are based on Prime lending rate minus or plus a specific amount.Contact your Accredited Mortgage Professional, Mortgage Broker today to find out more about your available mortgage solutions.

What is UFFI?

What Is UFFI?


Urea-formaldehyde foam insulation (UFFI) was developed in Europe in the 1950s as an improved means of insulating difficult-to-reach cavities in house walls. It is typically made at a construction site from a mixture of urea-formaldehyde resin, a foaming agent and compressed air. When the mixture is injected into the wall, urea and formaldehyde unite and "cure" into an insulating foam plastic.

During the 1970s, when concerns about energy efficiency led to efforts to improve home insulation in Canada, UFFI became an important insulation product for existing houses. Most installations occurred between 1977 and its ban in Canada in 1980.

Why Was UFFI Banned?

In the insulating process, a slight excess of formaldehyde was often added to ensure complete "curing" with the urea to produce the urea-formaldehyde foam. That excess was given off during the curing, almost entirely within a day or two of injection. Properly installed, UFFI might not have resulted in any problem. Unfortunately, however, UFFI was sometimes improperly installed or used in locations where it should not have been. Enough complaints were received, particularly from people living in small, well-sealed homes, that Canadian authorities became concerned about possible health implications. The further use of UFFI was banned in 1980.

What Is Formaldehyde?

Formaldehyde is a pungent, colourless gas commonly used in water solution as a preservative and disinfectant. It is also a basis for major plastics, including durable adhesives. It occurs naturally in the human body and in the outdoor environment. Formaldehyde is used to bond plywood, particleboard, carpets and fabrics, and it contributes to "that new house smell." Formaldehyde is also a by product of combustion; it is found in tobacco smoke, vehicle exhaust and the fumes from furnaces, fireplaces and wood stoves.

While small amounts of formaldehyde are harmless, it is an irritating and toxic gas in significant concentrations. Symptoms of overexposure to formaldehyde include irritation to eyes, nose and throat; persistent cough and respiratory distress; skin irritation; nausea; headache; and dizziness.

Health Canada has determined that 0.1 parts per million (ppm) is a safe level of formaldehyde in the home. Sensitivity to this level may vary based on individual age and health.

Should You Be Concerned About UFFI Today?

Tests show that UFFI is not a source of over-exposure to formaldehyde after the initial curing and release of excess gas. As it was last installed in 1980, it would certainly not be causing excess indoor formaldehyde today. Houses with UFFI show no higher formaldehyde levels than those without it. However, if UFFI comes in contact with water or moisture, it could begin to break down. Wet or deteriorating UFFI should be removed by a specialist and the source of the moisture problem should be repaired.

In new or other well-sealed houses, significant indoor formaldehyde levels may still occur when new carpets or wood composite materials, such as plywood, particleboard and waferboard, are used in home construction, cabinetry and furnishings. These are the most likely sources of high formaldehyde levels in the home today.

If you are asked for a UFFI declaration

Since 1993, a UFFI declaration has not been required for mortgage insurance under the National Housing Act. However, a UFFI declaration may still be requested as part of a real estate listing or an agreement of purchase and sale. Even though UFFI should not be a cause for concern, you may, depending on where you live in Canada, be asked to declare whether or not it is in your home.

Some home inspectors will have the training or experience to identify UFFI. You can make a physical check of the home yourself. Look for a series of small patched holes, 1.2 to 2 cm (1/2 to 3/4 in.) across, at regular intervals on exterior or interior walls. Foam may be obvious where floor joists meet the exterior walls of the basement or around electrical outlets or switch plates. These indicators do not necessarily mean that UFFI is present, but they may alert you to the possibility.

May Sales in GTA Region Remain High

June 3, 2010 -- Greater Toronto REALTORS® reported 9,470 sales through the Multiple Listing Service® (MLS®) in May, representing a 1% dip from May 2009. In comparison to previous years, this was the third highest May sales result on record.

“The pace of transactions slowed in May following record-setting sales in February, March and April,” said Toronto Real Estate Board President Tom Lebour. “Buyers who otherwise would have been purchasing a home in May moved more quickly this year, likely to get ahead of mortgage rate hikes.”

New listings were up 38% annually to 18,940. The average price for May transactions was $446,593 – up 13% compared to the average of $395,609 recorded in May 2009.

“The gap between listings and sales has widened, which means there is more choice for buyers,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “The annual rate of price growth will slow in the second half of 2010, from the current double digit pace into the single digits.”

To read the full report http://www.zeeniakola.com/ShowResources.cfm?TypeOfPage=5&Page=1

Warm Regards,
Zeenia Kola
Sales Representative with Re/Max Realty Specialists Inc., Brokerage
Add: 2691 Credit Valley Road, Mississauga, ON L5M 7A1
Ph: 905-828-3434
Email: zeenia@zeeniakola.com
Website: http://www.zeeniakola.com/
or
http://zeeniakola.com/AgentProfile/contactme.cfm

Flaherty tightens mortgage rules

Jim Flaherty announced today plans to tightened mortgage lending rules which will take into effect on April 19, 2010. Please read below. I have also included a globe and mail link at the bottom of the page.

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.

"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

http://www.theglobeandmail.com/report-on-business/economy/jim-flaherty-tightens-mortgage-rules/article1469432/

Regards,

For further information contact:
Zeenia Kola with Sales Representative with Re/Max Realty Specialists Inc. Brokerage.
Ph: 905-828-3434
Website: www.zeeniakola.com
Email: zeenia@zeeniakola.com

or visit

http://www.zeeniakola.com/AgentProfile/contactme.cfm