Dipping into RSP to pay the mortgage.

There was a discussion here the other day about someone dipping into their RSP to pay the mortgage on the investment property they couldn’t sell.

It brought up comment anecdotes about others dipping into their retirement funds to pay the mortgage.

DON’T DO IT!

RSPs are protected in bankruptcy, but if you withdraw from them to pay for a losing asset and end up going bankrupt you lose not just the home, but your retirement savings as well.

And you want to retire don’t you?

You should exhaust all other options before touching your RSPs and that includes the option of bankruptcy.  Losing your home isn’t nearly as bad as losing your home and all of your retirement savings.

Real estate is not always the direct path to riches, leverage is a beautiful thing on the way up, but it can really bite on the way down.   Just ask anyone in who bought in the hot bubble markets of the US in 2005.

Don’t make the mistake of throwing away your retirement savings, especially if you don’t have a lot of time to start over with your savings.

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Anonymous
Guest
Anonymous

How do you add affordable houses in Vancouver? Build them in the middle of the street

http://news.nationalpost.com/2012/10/22/how-do-you-add-affordable-houses-in-vancouver-build-them-in-the-middle-of-the-street/

More Data Please
Guest
More Data Please

@Anonymous: re: Thin Streets

They could build a platform over every street and stack them there too. It doesn’t matter.

Idiots with CMHC Casino money will buy them up for top dollar and you will need still more!

patriotz
Member

@Anonymous:
“Increasingly, only the wealthy — and the very poor, thanks to new social housing — can afford to live here.”

Living somewhere is not the same as buying somewhere, doofus.

Typical NP analysis – don’t even look at the option of renting. God knows the Globe has its shortcomings but it’s a giant compared to that rag.

patriotz
Member

Five reasons why you might be a mortgage prisoner – and how to escape

Lenders have been busy altering criteria which, combined with house prices that have yet to recover to their 2007 peak, means you could struggle if you ever decided to move your loan to another bank or building society

What’s this? Lenders are getting tough at renewal time when mortgages are underwater and borrowers can’t switch to another lender? Good thing we have 25 year fixed rate terms in Canada, eh?

🙂

Many Franks
Guest
Many Franks

Here’s Carney’s rate announcement. He didn’t emasculate the announcement as much as expected, and even added some specific language about housing debt.

Many Franks
Guest
Many Franks

@Many Franks: …not that I actually expect him to do anything more than jawbone after so many years of frenzied inactivity…

RFM
Guest
RFM

Here’s a link to an interesting Reuters video on the increase in rentership in the USofA:

http://www.reuters.com/video/2012/10/19/reuters-tv-renting-the-american-dream-decoder?videoId=238556511&videoChannel=117772

an observer
Guest

Update on Philip Chan, the realtor who on the National said this about his Kitsilano duplex build:

“Unit like this, I think you can find no more than 10 on the market at this moment. How much can it drop?”

and who indicated it won’t drop more than 10 or 12% along with the gem

“Nobody can predict the future, so if you see that the market is healthy enough and you can afford to do it, do it. You can either sit by the ballpark and you watch the game or you can go down and play the game. You might get hurt or you might win.”

The unit is now down an additional $25K so running total is 25% off original price plus a 2012 FIAT 500. Someone’s getting hurt!

pricedoutfornow
Guest
pricedoutfornow
This was the topic on this morning’s financial tips spot on CBC radio. A CA was advising people to reconsider if they are liquidating their RRSPs in order to fund a bad real estate investment (or something like that, was half-listening for part of it). One thing that caught my attention, the CA was advising people to retire without any debt. The radio host says in an incredulous tone “But is that REALLY possible???” WTF? I for one, don’t understand how someone who is in their 50 or 60s, bought their house in the 1970s or 80 for at least 50% less than what prices are today, can have an enormous amount of debt going into retirement. But I guess people have been taking money out of their houses in the form of HELOCs so it shouldn’t be so surprising.… Read more »
patriotz
Member

@pricedoutfornow:
Benchmark price for a detached house in GV in the mid-1980’s was about $125K. Say 10K down, 25 year amort, 12% interest gives $1211 monthly payment at a time when incomes were about 1/2 today in nominal terms, decreasing every time it renewed since interest rates have gone down steadily. And it would be paid off right around now.

Can't wait
Guest
Can't wait

@pricedoutfornow: File that under COC.

“But is that REALLY possible???” – CBC radio is the official station for COCs.

jesse
Member

@pricedoutfornow: “can have an enormous amount of debt going into retirement”

The gripe I have with Vancouver specifically is that houses are built so as to require investment. Think about a detached house of newer vintage. To make the numbers work for most people they will require tenants in basement suites (and laneways). Since rental income is a cash flow, the owners need to either buy this place in cash and live off the rental income, or take on a mortgage backed by the rental income. These properties are, by their design, built for investment and, often, concomitant financing. These are not properties for just living, they are businesses. And Vancouver is full of them.

space889
Member
space889
I have a feeling that many people will be “advised” into exactly this strategy by the nice lady at the bank come mortgage renewal time or LOC being called. Failing that, they will likely be guilt tripped, shamed, bullied, threatened into making this move. Let’s be honest, how many people really think bk as a viable first strategy? Not many. Many people are disgusted at the very idea of bk and also mortally afraid of the hit to their credit rating which would spell the end of life as they know it. So they will doing anything to prevent that, even if it means going all-in with RRSP withdraw and the associated 50%+ tax hit (10% penalty + taxed at your marginal tax rate). The lenders on the other hand will rub their hands in glee since they are getting… Read more »
Not much of a name...
Member
Not much of a name...

@jesse:

These properties are, by their design, built for investment and, often, concomitant financing. These are not properties for just living, they are businesses.

And therein lies the problem. Most of the purchases of these “businesses” are not assessed based on the numbers.

jesse
Member
BIV: Bones discovery threatens to sink couple’s life savings Two B.C. seniors are faced with losing their life savings thanks to the B.C. government reversing a decision to allow development on a Vancouver site that they have owned for decades. Retirees Gary Hackett, 70, and Fran Hackett, 67, partnered with developer Century Group to develop a $42 million, 108-unit condominium tower at 1338 Southwest Marine Drive and were encouraged by governments – until it all changed last month. In May, the development hit the headlines as work crews discovered human remains on the site, which is recognized as a historic aboriginal midden. Believing the discovered remains were those of their ancestors, the Musqueam protested outside the site to call a halt to development. The discovery was deemed culturally significant enough to force work to stop, and on September 28, the… Read more »
jesse
Member

@space889: Agree, space, I think the desire to avoid BK will preempt rational decisions on protecting what little is left. But should that be any surprise? This market appreciated for irrational reasons, we should expect no more rational decisions subsequent.

UnagiDon
Guest
UnagiDon

@jesse: So the Hackett’s put their “life savings” into a speculative land development scheme that turned sour. I blame “HAM”.

Hot Aboriginal Mummies?

Anonymous
Guest
Anonymous

Is this townhouse flipped for $300,000 + gain in the summer?

MLS#:V675069
MLS#:V929365

Veni Vidi Vci
Guest
Veni Vidi Vci

@an observer: If anybody tries to sell you something with the line “You might get hurt or you might win.” I can pretty much guarantee the end result will be ‘hurt’.

RaggedyRenter
Guest
RaggedyRenter

I’d rather have speculators dip into their RRSP to pay for their gambling loss than have the taxpayers pay for it in a bankruptcy proceeding.

Makaya
Member
Makaya

Off Topic.

I just switched my car insurance from ICBC to MPI (Manitoba). My premium is now 55% cheaper for the exact same coverage.

It’s not just housing that is an absolute rip off in Vancouver…

Someguy
Guest
Someguy

@RaggedyRenter:
At this point a bankruptcy is not paid for by the taxpayers, but the the creditors. Even the CMHC is currently quite solvent on their fund, which was paid for not by the government but by those that acquired mortgage insurance.

You are assuming insolvency of the CMHC reserve, triggering a bailout. I’m not sure that’s the case.

kinky
Guest
kinky

@Makaya

well that is discount for shoveling the snow 8 months in a year.

Anonymous
Guest
Anonymous

@Makaya: Gas in Toronto today is $1.13.9 and in Vancouver….$1.35.9!

X
Guest
X

@Anonymous: In Ontario my family MSP premiums would be zero, here they are $120/ month.

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