Budget measures aimed at home buyers could put retirement savings at risk GlobeInvestor
The changes to the Home Buyers’ Plan may be attractive to some clients, but it also poses long-term risks that they should consider.New incentives for home buyers introduced in this year’s federal budget will be attractive to certain people, but financial advisors are already warning some clients to think carefully before they take the plunge.
in Toronto. “But the provisions are small and incremental for people trying to get into a market like Toronto, where prices are high. So, it’s not a universal program.”For the shared equity provision introduced in the budget, the Canada Mortgage and Housing Corp. will become a mortgage provider in addition to its traditional role as a mortgage insurer. The CMHC will now offer interest-free loans worth up to 10 per cent of the price of newly built homes or 5 per cent for resale homes.
But while these measures make it easier for some prospective home buyers to enter the housing market, they also need to take into consideration the fact that the down payment is only the start of the cost of home ownership. Furthermore, while having greater access to more funds as part of the HBP will make it easier for some clients to access home ownership, it also poses long-term risks that clients should consider.
“People need to be conscious of all their cash flow – paying back the mortgage, paying utilities and upkeep and paying back the money into their RRSP if they use the Home Buyers’ Plan,” Mr. Carroll says. “This change in the budget to $35,000 from $25,000 doesn’t seem to change the payback period. If it’s a couple, they may need to pay back $70,000, and the danger that I have seen with clients is that the payback becomes too large to handle.
Indeed, one strategy for first-time home buyers is to contribute the maximum amount to RRSPs each year to lower their income and reap a tax refund, which can then be invested into a TFSA that can be applied toward a down payment for a home.
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