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Should I take out an RRSP loan?

I posted this to the Personal Finance forum at RedFlagDeals.com, but figured I’d see of any of my readers can give me any advice as well. :)

So this morning, my mortgage broker suggested I take out an RRSP loan, of about $10k right now (in order to have my money in my RRSPs for the required 90 days before I take it out). I know I’ll have to pay the entire loan off before I’m eligible for the HBP, but I’m confident I can pay that amount off in 2.5 months or less.

If I really wanted to, I could just chuck my entire Condo Down Payment fund of $5500 into the RRSPs now, and take out a smaller loan of $4500-5000.

Taking out this loan would enable me to have all my money in my RRSPs right now, instead of staggering my deposits and having to wait 90 days until the very last deposit in order for it all to be eligible for the HBP. And that means the earliest I could close on a property would be in November. But maybe that’s for the best anyway. I can keep on saving my money and will have a bigger down payment by then.

Of course, I would have to pay interest on the loan, but maybe it might be worth it? Any thoughts?

*** EDIT ***
Now that I’ve had a few hours to think about it, I think I’m going to do it. If I take out $7,000 as a loan, I could destroy it in less than 2 months with the rate I’m saving. And basically as long as I pay it back within the 90 days, I’ll be set … because it’s not like I can take the money out for the HBP until the 90 days are up anyway.

Adjusting my Mutual Funds

Hey I just wanted to thank all of you for posting such thoughtful comments on what I should do with my mutual funds. I ended up switching over to a Money Market fund, as well as a T-Bill fund. The money that is currently still in the moderate risk funds I’m going to leave in there for now, because I don’t want to lose the 2% I’ll get charged if I move it into a different fund within 90 days of purchase.

Below are just a few of the responses I got:

Mariam
Since you need the money short term, I think you’d be better off in the MM fund. Yeah, I’m tempted to pick up things while they are cheaper, but I think things are still overpriced. I also promised myself that I will try not to do anything without an investment strategy/plan. Investing is something you can’t cram into a night and I think it’s a lifetime learning process. You’re still young but if you need the money, I wouldn’t risk it.

Mike (fourpillars)
For a short term investment you need to go as low risk as possible ie MM fund.

The idea is to increase the probability that the $$ will be there when you need it. If you only have a one year time line then you cannot be sure that money invested in equities will all be there when you need it.

Once you buy a property and put a deposit down then you definitely need to make sure the rest of the downpayment is in money market & cash.

gates vp
Yeah Krystal, when you mentioned the HBP, I completely forgot to mention that you should be pulling part of your funds into “guaranteed returns”: T-Bills and Money Market funds.

Of course, the big question here is “when are you actually planning on dropping the money on the house”?

If you have <> 2 years, then you have a lot of options. You see, at the rate you’re going you’ll have way more than 20k in RRSPs in 2 years, but 20k is all that you can use.

If you figure on having 30 or 40k in RRSPs by the time you’re ready, then you can divvy up the pieces and grow 20k the “safe way” and grow the rest on the markets.

Personally, my big question would be “What am I going to do for investing in 2 years when I have my new place?”

Once you buy the home, much of the monthly pool of money you have for investing will become tied up in the home. Whatever part of your RRSPs left over after the home purchase now become your future “retirement” funds. So this is probably a nice reminder to ensure that everything is funded in a few years :)

Oh, and also a big thanks to Jagular, who wrote an entire post on Money Allocation for me!!!

Also, there was one comment asking for a little advice:

Anonymous
Can someone suggest some good, money-market accounts? I was looking into the ones with ING because I already have a lot of investments through them, but the returns (I was checking since inception) on most of them are even less that those on my saving accounts and GICs.

Personally, I’m with TD Canada Trust. Through looking at the MM funds, I noticed that they do return significantly less than other funds, but that’s what you get for the security of having your money in a very low risk fund. To be honest, I didn’t do much research at other financial institutions because all my investments are with TD, and I’d like to keep everything there for convenience. At least for now anyway.

Switching my money categories around

Since I’ve decided to max out my RRSPs this year, and take them out for the First Time Home Buyer’s Plan, I decided to update my goals on the sidebar. I lowered my Condo Down Payment fund from $40k down to $25k, and increased my Retirement Portfolio goal from $3k to $16k. Combined, that’ll still give me the $40k down payment I need. This way, I can see my goals a little clearer. I also updated my NetworthIQ, and am pleased to see that I’m steadily increasing my net worth! :)

Speaking of down payments, I got in touch with a realtor and will be setting up an initial meeting with her in the next month or so. She is the mother of my (ex)boss at the arena, and is a well-respected agent in the city, so I know I’m in good hands. My mom has a friend who is a mortgage broker, so I’ll probably go through him when I’m ready to figure out my financial situation.

The BF has been pleading with me to show him this blog. He’s been really into personal finance lately, and I just think he’s curious as to what I’ve been writing about. :) He even said he might want to start up his own PF blog too! That would be kinda cool. I’m inclined to give in and just show him, because it’s not like he couldn’t do a simple Google search and find it for himself. Anyway, it’s something to think about.

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