The Registered Retirement Savings Plan (RRSP) is encouraging parents to help their kids in the process of purchasing a home.
In the city of Vancouver, the federal government should grant parents the ability to help their children to buy a home by withdrawing from their retirement savings, in addition to the maximum withdrawal limit increased to $10,000, according to the Canadian Real Estate Association (CREA).
We all know how hard it is financially for young Canadians when trying to purchase a home for the first time. In order to ease this problem, extending the Home Buyers’ Plan to allow “intergenerational RRSP loans” could just do so. The CREA stated in its 2018 pre-budget submission to the House of Commons Standing Committee on Finance.
With the present plan, people buying a home for the first time are allowed to withdraw up to $25,000 from their RRSPs to help chip in to the purchasing of a home. However, the tax-free loan must be repaid within 15 years.
Most parents have already started giving out down payments. The RRSP said that granting parents access to the plan would assist first time buyers and also help ease their financial obligations.
In October this year, the national median price for a home was 505,937 plus it was up by 5 per cent from a year back, as stated by the association. Toronto and Vancouver are the markets who have been contributing to these gains. In Greater Vancouver the benchmark price of a house was $1,042,300, that is up by 12.4 per cent from last year. Also in the greater Toronto Area, median property price was $780,104 and was up by 2.3 per cent ,this all happen in th space of one year, according to the Toronto Real Estate board.
“A formalized mechanism which allows for the transfer of RRSP funds from parents to their children would help not only increase the available down payment and reduce the amount borrowed, but also limit risk to the lender,” the TREB said.
As stated in an online survey by the Canada Mortgage and Housing Corp., almost one in five first time buyers have been assisted by a family member with a down payment. However, the Marketing Research and Intelligence Association states that the online surveys is not entirely wrong because they do not randomly sample the population.
The CREA said that a formalized mechanism that allows parents to transfer their savings, with a maximum withdrawal of up to $25,000. This would therefore help increase available down payments amount, and finally lessen the amount borrowed and limit risk to the lender.
It also wants both parents to be fit to also loan money to anyone they had declared as dependents from their RRSP and on their income tax return.
A professor from the University of British Columbia’s Sauder School of Business, Thomas Davidoff said the CREA is not unhelpful, no one can answer whether people are able to make withdrawals form retirement savings tax free, in order to fund a property down payment.
The CREA also recommended that the government should extent the plan to homeowners who relocate for work, made a decision to move in with an elderly family member or loss of a spouse through death or divorce. The association also requested from the government to raise the maximum withdrawal amount by $10,000 in order for first time buyers to make bigger down payments and also have less debt to face.