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Interest Rates

June 7, 2019

No joke our financial institutions are in a state of disarray, according to CBC News bankers are lowering interest rates on mortgages despite the overnight rate remaining unchanged.  The federal government is encouraging poor people, who can’t afford a down payment, to take on the biggest debt of their lives by liquidating their RSP savings.  Add to that the CMHC, which already takes 4% of the value of the property, from the purchaser, as a lump sum payment for insuring the lender is now proposing to help lend money to first time home buyers.

If you are not concerned yet, you should be.  The reason mortgage lenders are lowering their rates is that the market is reaching near saturation on all fronts.  Bankers are desperate to hook new immigrants on the credit card scheme and start them on a lifetime of perpetual debt.  There is no end in sight to the madness.

The perils of liquidating your RSPs to buy a house are manifold, first you have collapsed your retirement asset – it no longer exists.  The government still considers your investment to be sound because you are deemed to owe the money to yourself to be refunded to your investment over the next fifteen years.  In each subsequent year you don’t put the money back into an RSP you are deemed to have drawn that amount into income and you must pay taxes on it as such.

What happens if you run into problems, a marital breakdown or loss of employment and fall behind on the mortgage?  Well the house will be sold under power of sale and since you are already overleveraged you will incur a debt for legal costs and penalties.  “But I had insurance with CMHC – it cost me 4% of the value of the property and the premium came out of the 5% down payment I had” you may very well protest.   Too bad, you insured the lender not yourself.

Even if you decide to go bankrupt, you still can’t get out from under the requirement to repay the CRA for the taxes arising from the RSP withdrawal.  The logic from the CRA’s perspective is that the money is deemed to be withdrawn at a future time and since you can’t be assessed until the tax return become due the debt doesn’t exist until the return is filed.  However, this logic is in stark contrast with Section 121 of the Bankruptcy & Insolvency Act which states;

 “121 (1) All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act.”

Now, poor, vulnerable, bankrupts, who were so poor they had to collapse their RSPs to buy a house, clearly don’t have the money to fight the CRA in court to have the debt expunged in the bankruptcy proceeding.  A lowly Licensed Insolvency Trustee is also not positioned to spend the money on legal challenges that would undoubtedly lead to appeals and possibly a decision from the Supreme Court of Canada.  Once again, the system has benefits for the wealthy that do not extend to the poor.