Marie-Pierre decided to buy a nice home in the suburbs. However, when she applied for a loan with her financial institution, she was refused. They explained to her that she was already carrying too many debts and fixed monthly payments to qualify for a mortgage.
Later that night she met up with some friends and told them the bad news. One of her friends, a former client of mine, told her to come and see me for a second opinion.
Here are the numbers we reviewed together :
- Current balance in chequing account : $ 2, 000
- Total RRSP's : $30, 000
- Current credit card loan (payment $120/month) : $4, 000
- Balance on her car loan (payment $400/month) : $3, 000
- Balance on heur student loan (payment $200/month) : $2, 000)
- Cost of the home : $300, 000
- Minimum down payment 5% : %15, 000
However, upon further analysis, here is the solution I suggested:Based on my initial calculations, with the $20,000 cash (coming from the RRSP’s) she wanted to use for the down payment, her debt ratios were too high. She already had too many monthly payments to qualify for the mortgage. It looked like her bank was right.
Note: the Home Buyer’s Plan (HBP) allows a person to use up to $25,000 from their RRSP’s toward the purchase of a property.
Using the full $25,000 from her RRSP would give her the $15,000 required for the down payment and leave $10,000 to pay off her credit card ($4,000), car loan ($3,000), and half of her student loan ($1,000), and she would still have $2,000 left for moving expenses and closing costs.
With these monthly payments no longer in her portfolio, Marie-Pierre is not only saving a lot of interest payments, she now also qualifies for her mortgage. A win-win for her!
For more information regarding mortgage loans and qualification, please do not hesitate to contact me!
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