Buying a home is a significant financial milestone. While it’s an exciting step, it can also bring a great deal of anxiety for first-time buyers—especially in today’s rapidly changing mortgage and real estate landscape.
As a mortgage broker, you play a key role in guiding potential home buyers beyond just securing their financing. Building relationships early in their home buying journey by sharing knowledge and building out a step-by-step plan can help your clients grow their wealth and create pathways to achieving their homeownership goals.
The more tools and resources you have in your back pocket, the more clients you’ll be able to help into their dream homes. This includes understanding how different types of lenders, such as alternative and private mortgage lenders, can serve a variety of client needs. In addition, by understanding financial tools and savings mechanisms, you can help position eager homebuyers for success.
One such tool is the Registered Retirement Savings Plans (RRSP). By educating homebuyers about how to incorporate RRSP strategies into their homebuying plans, you can unlock new mortgage opportunities and foster lasting client loyalty. In this blog, we’ll recap everything you need to know about using RRSPs—a valuable resource you can share with prospective clients that are interested in exploring home ownership.
RRSP basics
An RRSP is a savings plan that allows Canadians to save for retirement on a tax-deferred basis. Contributions to an RRSP are deducted from your gross income, reducing your taxable income for the year. In addition, any growth in investments within the RRSP isn’t taxed until the money is taken out. For first-time home buyers, it can also be especially valuable because you can withdraw a specified amount of funds tax-free to help with purchasing your first home.
By reviewing the benefits of RRSPs with clients, you can help them access additional funds for a downpayment while continuing to grow their wealth.
Leveraging the Home Buyer’s Plan
First time home buyers can leverage the money in their RRSP through the The Home Buyers’ Plan. Specifically, an individual can withdraw up to $60,000 towards a down payment for purchasing their first home, as of April 2024. Generally, money withdrawn from an RRSP is taxed as income. However, through the Home Buyer’s Plan, withdrawals are completely tax free, which allows clients to maximize their savings for purchasing a home. If your client participates in the Home Buyer’s Plan, they must repay the amount they withdraw from their RRSP over a 15-year period, which starts two years after the calendar year of the withdrawal.
Leveraging the Home Buyer’s Plan offers a significant advantage to buyers who may be struggling to meet the minimum down payment required or those wanting to make a larger down payment to lower their monthly payments, particularly in urban markets. Despite some softening in Canadian housing markets, prices remain competitive. In November 2024, the average price of homes sold across Canada was $694, 411, a 7.4% increase from $646, 621 the year before, according to the Canadian Real Estate Association. If the Home Buyer’s Plan seems like a viable option for your client, encourage them to contribute to their RRSP before the March 1st deadline to maximize their tax refund. This provides immediate tax relief while also increasing the funds they’ll have available to withdraw through the plan.
Many Canadians are unaware of the Home Buyer’s Plan, how it works, and its benefits. Discussing this option with clients early on can help them take full advantage of it and achieve their homeownership goals.
Saving towards home ownership goals
As a mortgage broker, your role often extends beyond working with your lending partners to arrange financing on behalf of a client. Even if homeownership isn’t an immediate goal for your client, educating them on how to leverage their RRSP to build wealth and achieve their goals is a great place to start. RRSPs can play a key role in a client’s broader financial strategy, helping to lay the foundation for long-term financial security. Working with clients in the early stages of their financial planning gives you the opportunity to be a trusted advisor in their long-term financial journey.
RRSPs are not just a great savings account–they’re also a powerful investment vehicle that grows wealth on a tax-deferred basis. This means that income from any investments within an RRSP, such as mutual funds or GICs, won’t be taxed until the money is withdrawn, typically during retirement. Helping clients grow their wealth in a tax-sheltered account can significantly boost the growth and value of their savings over time. In addition, since withdrawals (excluding those under the Home Buyer’s Plan) are typically made during retirement, when income and tax rates are generally lower, this strategy can help reduce the total taxes paid over your lifetime and increase your after-tax income during your working years.
Another benefit is that RRSPs can potentially result in a tax refund for many taxpayers. As a simplified example, if your client contributes $10,000 to their RRSP and is taxed at30% on their income, they could receive a $3,000 refund. After filing their annual tax return, this refund can then be used to support their homeownership goals, fund upgrades or renovations to their new home when that time comes, or pay off high-interest debt to improve their credit rating and cash flow.
In addition, depending on their mortgage type, clients may have flexibility in how they pay back their loan. For example, private mortgage lenders like CMI may offer flexible repayment plans, including prepaying the mortgage for all or part of the term, or offering interest-only payments.
Before the annual RRSP contribution deadline on March 1, it’s a great opportunity to reconnect with clients to help them maximize their benefits.
RRSPs as a financing tool
RRSPs are a versatile savings mechanism that can help clients achieve important milestones, such as buying a home. Adding value to your clients by educating them on the benefits of RRSPs, along with other tools and strategies, can help them reach both their immediate and long-term financial goals. Supporting clients at every stage of their financial journey positions you as a trusted financial partner, fostering loyalty and referrals.
At CMI, we’re committed to supporting our broker partners. Reach out to us today for advice on scenarios or deal structuring support. We’re here to help.
