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Military (DND) severance payment buyouts and buying a house
January 23, 2013 @ 3:26 PM by:

Last year it was announced (as part of a cost cutting measure) that the 92,000 members of the Canadian military (both regular and reservists) were given the option of cashing out any accumulated severance payments.    The rate of the compensation was set at one week's pay for every year of service.   Members were given the option of either taking the payout in cash, or vesting the payment inside an RSP.

Given the changes in the mortgage rules over the last 3-4 years, which have made it extremely difficult to buy a home with no downpayment, this could be a once in a lifetime opportunity for many of Canada's military families to stop throwing away money renting a PMQ or apartment and finally purchase a house.   Let's look at an example.

If you are making $52,000/year right now and have been in the forces for 10 years, this would mean you would receive a payment of $10,000 as a severance buyout.   If you took the money in cash you would end up with around $6500 after taxes but if you sheltered the funds you would end up with the whole $10,000 in a RSP.    As I'm sure most (if not all) military families know, you are eligible to have Brookfield pay the closing costs (legal fees, appraisal/inspection fees, land transfer tax) for up to 24 months after being posted (that means you don't have to dig into your pocket for any money to buy a house).     Using that $10,000 as a minimal downpayment to purchase a $200,000 house (which will buy you a lot in Trenton/Quinte West), you would end up with a mortgage payment of only $921/month (based on a 5 year fixed rate mortgage of 2.99%).   Chances are you aren't paying less than that in rent for what you would likely consider less than optimal conditions.    

If you are posted to or from CFB Trenton or any military base in Canada, and are looking for a level of expertise that your local branch staff seems to lack, please THINK OUTSIDE THE BRANCH and give me (Craig Nickerson) a call to get you on the path to home ownership.