Did you know your RRSP account can boost your mortgage qualifying amount?
Well, it can! Several lenders offer what is known as a Total Net Worth lending program which can be a fantastic solution for a borrower who may have a modest income but has substantial liquid assets in the form of savings & investments. The catch here is the minimum requirement with most lenders who offer this program is $250,000 in liquid assets to qualify for the program.
So how does it work? Let’s say you are semi-retired have an income of $50,000 per year from a part time job, and some pension income. Your $50,000 annual income will qualify you for somewhere in the range of $200,000 with today’s rates and qualifying requirements, which doesn’t get us very far with current real estate prices! The Total Net Worth Program will increase your mortgage approval amount by the value of your investments in addition to what you can qualify for with your income alone. Let’s break it down below:
In addition to your 50K/year income you also have an investment portfolio of $500,000, 100K of that is in RRSPs, and the remaining 400K in TFSA, non-registered accounts and cash savings. (Note there is a 30% discount applied to retirement accounts to account for tax withholdings). In this example we would have a total of $470,000 in eligible funds for the Net Worth Program.
- $100,000 RRSP – 30% = $70,000 in eligible funds
- $400,000 in TFSA, Non-Reg, and cash savings
We would add this $470,000 in assets to the $200,000 mortgage approval amount that you can qualify for with your income, and you now have a mortgage approval amount of $670,000!! There is also no collateralization of these investments to use this program, and the funds don’t need to be moved to the lender who is offering you the new mortgage. You could get your financing approved and go spend that 500K on a Rolls Royce the next day if you wanted to, although I wouldn’t recommend it!
This program offers a great way to leverage the equity locked in your investment accounts, without the need to cash out and potentially pay taxes on your invested money. If you think this program may fit with your portfolio, or you have any questions at all don’t hesitate to reach out.
Craig Van Dolder
519 372 8524