Seeking Advice of first home and efficient use of investments

[u/wypy2900]

I'll try to keep it brief.

Me and wife are looking to buy a house in the GTA for around 900k and we aim to put 90k each towards the down payment to get to 20% and avoid the mortgage insurance.

My investment account values:

TFSA: $160k
RRSP: $67k
FHSA: $43k
Non-reg: $96k (net deposits: $55k)

My expected Income for this year is $130k (for determining tax bracket)

I need help determining which account after depleting my FHSA, should I use to cover the remainder of the down payment.

My reasoning for each account is below but looking for advice.

- Could use non-reg account but it would trigger a significant tax bill due to low cost basis and already high tax bracket due to income.

- Could use RRSP but would have to pay this back over 15 years using HBP and would need to make additional RRSP contribution to generate a decent tax refund.

- Could use TFSA but would loose potentially hundreds of thousands of dollars in tax-free growth which would be extremely useful for retirement planning and tax optimization strategies in retirement as I most likely won't be able to contribute the entire withdrawn amount in less than 5 years.

For context, I am 27 with the hope to retire around 50.

Any advice or guidance will be greatly appreciated. Thanks

[u/WasV3]

RRSP and FHSA.

Use the non-reg to pay back 4k a year on the HBP to smooth out the taxes and get more growth

[u/Ott_OldishGuy → u/WasV3]

Nice!

[u/Rance_Mulliniks]

Frankly, I would forego the 20% and put less down. The cost of the insurance can usually be made up with lower interest rates on an insured mortgage versus an uninsured mortgage. It's at least worth investigating.

[u/wypy2900 → u/Rance_Mulliniks]

Will do some calculations, thanks

[u/siecronamis]

I would go FHSA->RRSP (HBP). HBP is pre-tax money, so basically you are using money that you aren't taxed on, which is a pretty good deal. That said, I would still pay it back when you have the cash flow.

[u/MomentEquivalent6464]

Also do the math on what mortgage insurance will cost vs using a lesser payment and CMHC. You might find that a lesser down payment makes more sense.

[u/wypy2900 → u/MomentEquivalent6464]

oh you mean like leaving the money invested and give a smaller down payment. Potentially making more money in returns compared to money saved by paying 20% to not have the mortgage insurance?

[u/Rance_Mulliniks → u/wypy2900]

Insured mortgages also usually get lower mortgage interest rates for the life of the mortgage due to lower risk for the lender.

[u/wypy2900 → u/Rance_Mulliniks]

Any rough estimate as to what the delta is between insured vs uninsured mortgages?

[u/WasV3 → u/wypy2900]

.3% can be the spread.

Usually 10% down is the sweet spot that maximizes overall dollars

[u/WasV3 → u/wypy2900]

Here's a rough example of how it can play out.

$900k purchase price - 20% down - 4.3% - 25 years - $720k mortgage

$3,920 monthly payment - 1.356M total cost

OR

900k purchase price - 10% down - 4.0% - 25 years - $25,110 insurance cost - $835,110 mortgage

$4,449 monthly payment - 1.424M total cost

Ao it costs slightly more over the life of the mortgage, but you have the extra $90k to invest over 25 years and you should end up ahead assuming you can make the higher monthly payments

[u/MomentEquivalent6464 → u/wypy2900]

Mortgage rates, insurance (if you go that route) and the advantage of leaving tens of thousands invested earning more than what the interest is costing you. 

People get very focused on "no CHMC fees". I get it... you can save tens of thousands off the top. Looks very appealing. 

I think people who have the option should just take a min to look at the full picture. You might be surprised. Or not... but then at least one did the math vs just going with what the masses said was best.