Life has been busy! I’ve been working a lot of extra hours at my full-time job, planning the Canadian Personal Finance Conference, working on some freelance stuff, have done a bit of volunteering, and have been trying to declutter my place – which has been put on hold for the past week or so.
Over the last few hectic months, I’ve been thinking about my home and how functional it is for me. I love the neighbourhood I’m in, and my home is really cute. But I’m beginning to realize that my life is pulling me further into Vancouver, and I’m still stuck out here in the suburbs. Most company head offices (including my own) are located in the city, my boyfriend lives downtown, and all of the fun activities I like doing are in the city, or more easily accessible from Vancouver. The commutes are killing my productivity (2-3 hours round-trip), and if I could have that time back, I feel like I could be doing a lot more with my days.
My place has rental restrictions, so unless a family member moves in, I’m not allowed to rent it out. So the only thing I can do, aside from staying, is to sell my place and move closer into town.
It’s a tough decision to make, and I’m not quite there yet. I’ve been a home owner for 4 years, and while I don’t think I’m in a position to sell this year, I’m thinking hard about putting my place on the market to sell next year. That eliminates having to pay a hefty mortgage cancelation fee, and it gives me time to figure out what my next move is going to be.
So until that time comes, I’ll just keep on getting rid of my stuff. It’ll mean less packing once I do eventually decide to move. :)
Most of you know that when I bought my townhouse almost 4 years ago, I utilized the First Time Home Buyer’s Plan (HBP) to help with my down payment. For those unfamiliar with the HBP, it allows you to use up to $25,000 of your RRSPs towards the purchase of your first home – tax free!
This was a strategy I always knew I was going to use, so anything that was earmarked for my down payment, I threw into my RRSPs. Then, I would reinvest my tax refund back into my RRSPs for an even bigger gain. I also saved about $20,000 outside of my RRSPs, since the maximum you can take out is $25,000.
Related: How I saved for my down payment
You have up to 15 years to pay back the amount you’ve withdrawn, so for each year of your repayment period, you have to repay 1/15 of the total amount. So for example, I took out $25,000. My repayment every year is $1,666.67 ($25,000 / 15). Each year, you’ll get a Home Buyers’ Plan Statement of Account with your notice of assessment, which will include all the information you need – total HBP withdrawals, the amount you’ve repaid to date, your balance for the HBP, and the amount you have contributed to your RRSPs and designate as a repayment for the following years.
How to pay the HBP back
I use TurboTax every year to do my taxes, and it’s really straight-forward in how to pay it back.
Just enter in all of your information, and TurboTax will do the rest for you. Honestly, it really took all the stress away from paying back the HBP, because at first, it seemed really confusing. Most online tax software is set up to handle HBP repayments in a user-friendly way. :)
When you have to start repaying
Your first repayment starts the second year following the year you made the withdrawal.
You’re allowed to start making repayments earlier, but your years of repayment (15) will remain the same. Any repayments you make before your first repayment is required will reduce the amount you have to pay for the first year. That is, unless your early repayments are more than the minimum required payments for the first year, then the difference will reduce your HBP balance (and the remaining repayment amounts) over the 15 year repayment period.
Paying more or less than the minimum payment
If you want to pay more than the 1/15 required in any given year, you’ll still have to make your payments the next year, it’s just that the HBP in later years will be reduced.
However, if you want to pay LESS than the minimum required payment, the government will treat the amount you withdrew from your RRSP as income for that year. You’ll be taxed on it, and it won’t be pretty.
Important! You can’t withdraw any money from your RRSP that was contributed within the last 90 days. Consider the timing if you plan on utilizing the HBP for your first home.
What I love about the Home Buyers’ Plan is that you can use it for whatever you want. I used the entire amount for the down payment on my home, but you could use it for renovations, closing costs, or buying essentials for your home. It’s flexible, and that’s what makes it a good tool for first time home buyers.
Did you use, or are you considering using, the Home Buyers’ Plan for your first home?
Note: this post is sponsored by TurboTax Canada, but was written and edited by me.
One of the ideas I’ve been wrestling with for the last few months is my mortgage payments. I’m currently paying $660 bi-weekly, which is approximately $110 more than my minimum payment. I was happily paying this extra money until I realized that early retirement was still my number one financial goal. And if it’s the most important financial goal for me at the moment, why wasn’t my budget reflecting my priorities?
I thought about this for a long time, debated the merits of mortgage payments vs. RRSP with friends, tried to find money in my budget, got jealous because BF has a pension plan waiting for him in less than 20 years… and then I decided to make my move.
Related: What does retirement mean to you?
The extra $110 I’m putting towards my mortgage on a bi-weekly basis is gone. Instead, I will funnel the money into my RRSP/TFSA. That’s an extra $2,860 I can save in 2014, and will help me with my goal of saving at least $750/month towards retirement this year. With the tax refund I will receive, that money will go towards my mortgage as a lump sum payment.
I think this is an appropriate move because even with just my accelerated bi-weekly payments, I will be finished paying off my mortgage before my desired retirement age. And if that’s the case, it makes sense to put extra money into my retirement accounts now so that I can benefit from compound growth for the next 25+ years.
Take a look at the chart below. The dark blue represents accelerated bi-weekly payments without any additional prepayment options. That cut my original 30-year mortgage down by 4 years.
What I have been doing for the majority of last 2.5 years is what the orange represents: accelerated bi-weekly payments with an additional 20% prepayment. That knocked my mortgage down even further, to 19 years. It’s hard to give that up.
I’m anxious about reducing my mortgage payments, because my plan was always to pay down my mortgage as fast as possible. It doesn’t feel right to pay down debt at a slower rate than I’m capable of. But the past 2.5 years of home ownership have taught me a lot. Being a single homeowner is difficult. It’s hard to get ahead, and planning for the future is tough on a one-income household – especially a future that includes early retirement without a company pension. I’m comforted by the fact that my tax refunds will now go towards my mortgage, so at least I’ll continue to over contribute in some way. :) And, by changing the way I save my money, I believe I’m keeping myself on track to achieve my financial goals.