In this week’s episode of The Because Money Podcast, we finally got to fight a little. Agreeing all the time is so boring, isn’t it?
What did we cover that was so controversial? Only the Home Buyer’s Plan, that allows you to withdraw up to $25,000 tax-free from your RRSP and use it as the downpayment on your first home (or the first home you’ve owned in four years, or a home you’re buying with or for someone with a disability…the complete list of conditions is in this list of resources we put together.)
Jackson’s seven years of mortgage lending as a broker has convinced him that hardly anyone uses the program. Robb’s extensive research has convinced him that relatively few people use the program, and that the number is dropping every year. My seven years of mortgage lending at the bank has convinced me that people do use the program, even if not to it’s full extent, and that there’s no good reason not to – if owning a home is a good idea for you (which is a whole other kettle of fish).
Detractors of the HBP decry it as either stealing from your retirement to buy a home, or else such a miniscule amount in the face of higher house prices than when the program was implemented in 1992. They – essentially – boil down to this argument “Canadians are too dumb to save for their retirement and a home, and they’re too focused on buying a home anyway, and even if they did buy a home it would be too expensive, so let’s end the program.”
That’s nonsense. I recognize that there are a lot of Canadians whose financial lives could be described charitably as a hot mess. But I’d like the financial media to recognize that A) they probably know it, and B) preaching from your mountaintop isn’t going to change anything.
The ability to save your pre-tax income for a downpayment on a home is a good thing. Buying a home can be a good thing. Saving “only” $25,000 alone or $50,000 as a couple might be a smaller than ideal amount to put down on a house purchase, but it’s still tax-deferred savings* AND tax-free growth until the right house comes along, so still a good thing.
The issue isn’t that Canadians aren’t saving enough (although many aren’t), and it’s not that the Home Buyer’s Plan incentivizes them to withdraw from their retirement savings to purchase a home (although it does). The real issue is this: if you can’t afford to save at least $1,666 a year (each) after you’ve purchased a home, then you can’t afford your house.
The solution to the Home Buyer’s (Are Stealing From Their Retirement) Program isn’t to end the program; it’s this: when you’re sitting in front of your banker or broker, listening to them tell you how much mortgage you can afford, listen politely and then go home and do your own calculations.
*As an aside, just because many Canadians saving for a first time home purchase are young, and – theoretically, at least – earning less money than they will in their peak earning years, it doesn’t necessarily follow that they shouldn’t be contributing to an RRSP. They don’t have to claim contributions as deductions in the year they make them, you know.
As always (except sometimes), join me, +Jackson Middleton, and +Robb Engen on the first Wednesday of the month at 9:30PM EST for The Because Money Podcast. You can watch live and tweet at us using the hashtag #becausemoney, or take a half an hour to watch it later. Most days you can find one (or all) of us on Google+ or Twitter to suggest new topics or rake us over the coals for our egregious errors. Thanks for watching.