Real Estate

Home owners overleveraged and can't get their finances in order

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  • Aug 22nd, 2015 9:47 am
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Banned
Nov 18, 2014
824 posts
769 upvotes
Toronto, ON

Home owners overleveraged and can't get their finances in order

lol, just read an article over this weekend that stated:

According to CRA, of the 1,768,640 individuals who had a Home Buyers’ Plan balance owing at the start of 2013, 885,700 did not pay the full required annual repayment that year.


http://www.macleans.ca/politics/ottawa/ ... s-promise/


This just proves how overleveraged and house broke those who bought into this environment are. They're stretched so thin that they can't even repay the HBP. Combine that with a small interest rise or a small rise in unemployment, the entire house of cards will come crashing down as tons of people flock to sell.

Is anybody else surprised by how thin most home owners are stretched, to the point where they can't even repay the HBP?
75 replies
Deal Fanatic
Nov 9, 2013
5885 posts
7465 upvotes
Edmonton, AB
I don't see anything that suggests over leverage is the problem leading to the ~ 50% delinquency; just an article states there's 50% delinquency.

I think you are jumping to conclusions.

Image
Banned
User avatar
Nov 1, 2014
4317 posts
562 upvotes
Toronto, ON
rkanwar109 wrote: lol, just read an article over this weekend that stated:

According to CRA, of the 1,768,640 individuals who had a Home Buyers’ Plan balance owing at the start of 2013, 885,700 did not pay the full required annual repayment that year.


http://www.macleans.ca/politics/ottawa/ ... s-promise/


This just proves how overleveraged and house broke those who bought into this environment are. They're stretched so thin that they can't even repay the HBP. Combine that with a small interest rise or a small rise in unemployment, the entire house of cards will come crashing down as tons of people flock to sell.

Is anybody else surprised by how thin most home owners are stretched, to the point where they can't even repay the HBP?
ummm...ok..how many homeowners are there in canada? around 9.2 million?

why did they not pay back the full amount?
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
Income inclusion from not designating contributions for HBP isn't that big a deal. They effectively pay the marginal tax on the RRSP funds (that they saved/contributed themselves in years past) that they took out.

Having done other people's income tax before, I expect it's mostly people forgetting to mention to their tax preparer (or forgetting to designate a repayment if they did their own return) that they have a Home Buyer's Plan balance.
Banned
Nov 18, 2014
824 posts
769 upvotes
Toronto, ON
treva84 wrote: I don't see anything that suggests over leverage is the problem leading to the ~ 50% delinquency; just an article states there's 50% delinquency.

I think you are jumping to conclusions.

Image
If they had money, they would have obviously paid it back. They didn't pay it back because they're stretched so thin they can't even save to repay mandatory debt.
Banned
User avatar
Nov 1, 2014
4317 posts
562 upvotes
Toronto, ON
rkanwar109 wrote: If they had money, they would have obviously paid it back. They didn't pay it back because they're stretched so thin they can't even save to repay mandatory debt.
it's not mandatory..it's like withdrawing money from a registered account to invest..which they're pretty smart to do

take money out of rrsp to invest in another tax free investment (primary residence) where gains in RE are better than what they were getting in mutual funds in their rrsp's lol
Member
Jul 26, 2007
272 posts
165 upvotes
It's not really a loan in that you are not required to 'pay it back' (i.e. you didn't 'borrow' from anybody but yourself) - if you don't it just gets included as income for the year.

So essentially I view it as a RRSP withdrawal scheme where you get the benefit of only paying tax on it over number of years instead of having it taxed all at one year in the year of withdrawal.
Deal Addict
Mar 3, 2009
1913 posts
1221 upvotes
Ottawa, ON
The HBP is not a debt. You are borrowing from yourself and if you do not pay it back into your RRSP then you just pay the extra income tax. This may or may not be a good idea, but there is no way of knowing without looking at each case.

BTW, can you not find a larger font for the OP. I have a hard time reading it without my glasses on.
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
So 800,000 people didn't pay it back.

Now of those 800,000 it is possible that some deliberately didn't pay it back, even when they had the means to...because possibly that year they had a low income year? Perhaps they were unemployed or going back to school? Or stay at home moms? A layoff for a 7 month period but found a job later in the year? Perhaps took time off for personal reasons? Other expenses which brings your taxable income to low amounts?
It makes very good tax sense to not pay it back that year.

So let's reduce it to 500,000.

70% of households own homes.
There are 13 million households. So, 9 million households own a home.

Also, if we use the same ratio of converting individuals to households, the 500,000 individuals would translate to 185,000 households who are "truly over leveraged"

185,000 / 9 million = 2% of households, who own a home, are overleveraged.
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
rkanwar109 wrote: If they had money, they would have obviously paid it back. They didn't pay it back because they're stretched so thin they can't even save to repay mandatory debt.
This clearly demonstrates that OP has no assets as you don't understand the basics of RRSP and HBP

There's lots of situation where you have money but choose not to pay it back. As I highlighted above.
Banned
Nov 18, 2014
824 posts
769 upvotes
Toronto, ON
techcrium wrote: This clearly demonstrates that OP has no assets as you don't understand the basics of RRSP and HBP

There's lots of situation where you have money but choose not to pay it back. As I highlighted above.
I guess for poor people like you, the income tax you have to pay on it isn't much. For most people, it's a non-negligible amount. Tell me where you can make a guaranteed 40% return in 1 year by not repaying the HBP?

just lol
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
rkanwar109 wrote: I guess for poor people like you, the income tax you have to pay on it isn't much. For most people, it's a non-negligible amount. Tell me where you can make a guaranteed 40% return in 1 year by not repaying the HBP?

just lol
You are assuming that a stay at home mom's who just got pregnant with a kid is taxed at 40% that year doing what?

Do you even understand the home buyer's plan?

Just lol.
Banned
Nov 18, 2014
824 posts
769 upvotes
Toronto, ON
techcrium wrote: You are assuming that a stay at home mom's who just got pregnant with a kid is taxed at 40% that year doing what?

Do you even understand the home buyer's plan?

Just lol.
Once again, poor people problems. Those who actually have decent careers unlike yourself will have EI + income supplement from their employers. Their income would be the same as if they were still working. Once again, something you have no idea about.

Just lulz
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
rkanwar109 wrote: Once again, poor people problems. Those who actually have decent careers unlike yourself will have EI + income supplement from their employers. Their income would be the same as if they were still working. Once again, something you have no idea about.

Just lulz
rofl whatever you want to make you feel good about renting and having 0 assets, buddy.


I wish for you to come back in 2020 to supposedly brag about this real estate crash.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
rkanwar109 wrote: Once again, poor people problems. Those who actually have decent careers unlike yourself will have EI + income supplement from their employers. Their income would be the same as if they were still working. Once again, something you have no idea about.

Just lulz
What an ignorant statement. What about my self-employed wife? We don't qualify for EI or income supplement, yet we are far from poor. Last year when she gave birth, we lost her income.

If we were using the HBP at that time, I would have chosen not to pay the money back into the plan, or I would have had to think very carefully about it. Much more intelligent in that situation to pay the money back into the TFSA, I think, but I'd have to do the calculation.
Banned
Nov 18, 2014
824 posts
769 upvotes
Toronto, ON
bruceh2015 wrote: What an ignorant statement. What about my self-employed wife? We don't qualify for EI or income supplement, yet we are far from poor. Last year when she gave birth, we lost her income.
Your wife isn't getting EI because she didn't pay into EI. She had the option to, but selected not to.
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
rkanwar109 wrote: Your wife isn't getting EI because she didn't pay into EI. She had the option to, but selected not to.
So how is his family overleveraged, according to you?
Please entertain us.

His family didn't back back HBP because it made tax sense.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
rkanwar109 wrote: Your wife isn't getting EI because she didn't pay into EI. She had the option to, but selected not to.
True, however, even if she had contributed, she would have qualified for far less than her total income - 55% at most. If using HBP at that point, it would like have been best to not return it to the RRSP, pay the tax, and instead put it in the TFSA.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
techcrium wrote: So how is his family overleveraged, according to you?
Please entertain us.

His family didn't back back HBP because it made tax sense.
Not quite. :) I was using myself as a possible example of a family who would choose not to pay back the HBP. In reality, we weren't in that position anyhow - with the HBP, I mean.
Banned
Nov 18, 2014
824 posts
769 upvotes
Toronto, ON
techcrium wrote: So how is his family overleveraged, according to you?
Please entertain us.

His family didn't back back HBP because it made tax sense.
So you're saying that all 800k of those are women who are pregnant and not paying back HBP? Post data to backup that claim.

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