Reference no: EM132389636
Patricia lives on her own. She is currently renting but is ready to purchase her first home. As she knows that you are taking a Personal Finance course, she has turned to you for guidance before approaching the banks for a mortgage. Her monthly living expenses are $3,700.
Chequing account: $3,500
Furniture: $9,750
Car: $23,500
RRSP investments (Stocks): $111,650
Savings Account: $5,750
Cash: $50
Investments: Mutual Funds (bonds): $7,000
Student loan (3 years remaining): $12,000
Car loan (4 years remaining): $15,550
Credit card balance (unpaid balance after monthly minimum paid) : $1,600
Q1. Patricias home that she is looking to purchase is on the market for $200,000. This is a good price, in a hot market. She knows that the home will sell fast and will sell for the asking price. How much would Patricia need for a down payment on the home if she were to take a conventional mortgage?
ANS: If she were to take a conventional mortgage it would be between at least 5% - to at most 25%.
200 000 (.05) = 10 000
200 000(.25) = 50 000
Patricia can make a down payment from between $10 000- $50 000.
However according to RBC website, it's stated the higher the down payment percentage the more likely you will save money. Which makes sense as it would take less time to pay for the house.
Source : https://www.rbcroyalbank.com/mortgages/down-payment-options.html
Q2.If Patricia wanted to take advantage of the Home Buyer's Plan (HBP) in November 2019, what is the maximum amount that she could withdraw from her Registered Retirement Savings Plan (RRSP)? ( Hint: the amount under the HBP increased in March 2019, it is no longer $25,000). What is the minimum RRSP repayment amount required under the HBP that Patricia must make?
ANS: The Home Buyers Plan (HBP) lets you withdraw up to $35 000 from your RRSP to buy or even build a home.
Calculation: (.5 mark)
Funds need to be repaid over a maximum of 15 years, beginning with the second year after the year that it was withdrawn and the amount due is 1/15th of the amount borrow.
So let's say if Patricia decides to withdraw up to $35 000, her RRSP would go down from
111 650 - 35 000 = $76 650
And she would need to make payments of
35 000(1/15) = $2 333.33
Sources: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html
https://www.taxtips.ca/rrsp/homebuyersplan.htm
Q3.If Patricia only provides the HBP amount as a down payment, she would (have or not have) _________________ a conventional mortgage and would therefore (require or not require) _____________________ default insurance.
I'm not sure how to answer 3 so could somebody please help me thank you in advance!
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