All the Numbers

When the plan runs short of cash

From the All the Numbers wiki · Cash and where it goes

A plan can spend more than it earns. Some months that is planned, such as closing on a home; others it is a shock, such as a loss of pay. What the plan does next decides whether it shows a failure or what would really happen.

The order of draws

  1. Cash held in the plan.[1]
  2. Savings accounts, in the order set for the household. By default that is non-registered accounts, then RRSPs, then TFSAs.[1] While you still earn a salary, your RRSP comes last, after the TFSA: an RRSP withdrawal is taxed as income, and the room it used is never given back, while a TFSA withdrawal's room comes back the next January. A first home is still paid from the Home Buyers' Plan first.[2] If you set your own order, the plan follows it exactly. Each withdrawal is taxed by its own account's rules, and an FHSA or RESP is not used for spending. See cash and where savings go.
  3. A home equity line on each home owned, in the order the homes are listed.
  4. One unsecured line of credit. We assume each line lends only what a lender would approve, by the limits below, and when no lender would lend more the projection stops.[3]

While you still earn a salary, you can choose to borrow before the RRSP is drawn. A short month that has used every other account then borrows on the lines above first, up to a limit you set or as far as a lender would lend, and takes from the RRSP only what borrowing leaves. The RRSP keeps its tax shelter and its room, and the cost is the interest, which is not deducted when the money pays living costs.[4]

The rules for borrowing

  • Rates. 5.13% a year on the home equity line and 8.38% on the unsecured line, PWL Capital's long-run expected cost of each.[5][6] They are expectations, not today's quotes.
  • Home equity line limit. At most 65% of the home's value, and no more than 80% of its value once the mortgage is counted.[7][8]
  • Debt service limit. A lender stops when debt payments would pass 44% of gross income.[9] The count includes the mortgage payment, property tax, heat (a lender's standard estimate),[10] half of any condominium fee,[11] personal debt payments, a home line as a 25-year payment on its balance,[12] and an unsecured line as 3% of its balance a month.[13] Income counts pay, pensions and suite rent, which counts in full.[14] See renting out a suite and carrying costs.
  • Approval is not repeated. A line, once approved, can be used up to its limit even if income later falls. A higher limit is sought only when a month needs more than the limit, and then only to what qualifies that month.
  • Interest is a bill. The minimum payment is each month's interest. A month that cannot pay it borrows it, which is how debt compounds.
  • Repayment. Cash above any reserve the plan keeps repays the dearer line first, before any surplus is invested.
  • Tax. Interest on money borrowed to live on is not deductible; see interest on borrowed money.

What the engine does

  • Follows the order and limits above, using the value the plan projects for each home (see home prices).
  • Repays the home line when a home is sold. A balance the sale does not cover moves to the unsecured line if it qualifies.
  • Stops the projection when a month still needs money after every line is used to what lenders allow. The plan reports the month it stopped. A run that stops this way is also how stress tests and Monte Carlo count a plan as having run out.

What it deliberately does not

  • Defaults, collections, consumer proposals and bankruptcy. A plan that cannot borrow more simply stops.
  • Credit cards, overdrafts and payday loans.
  • A lender's discretion, credit score, or a cut to an approved limit when the home's value falls.
  • The amortizing part of a home loan between 65% and 80% of value, and refinancing the mortgage to consolidate.
  • Reverse mortgages, and borrowing to invest.
  • The stress-test rate for lines. Lenders count a line at its contract rate, which is what the plan uses; the purchase test is described in would a lender write the mortgage.

See also

  • Auto-allocation · When switched on, money left after spending and your own contributions is placed for you down a priority list — FHSA, then RRSP, then TFSA, then non-registered by default — each account taking what its room allows. Every dollar it moves is shown, by account, on each month and year.
  • Car loans, student loans, lines of credit and credit cards · Each debt you enter is a balance with a yearly rate and a monthly payment. The plan charges the interest each month and takes the payment from cash until the debt is paid off. A lender counts the payments of what is still owed when you buy a home.
  • Contributions the plan could not fund in full · Each month's leftover joins cash, and each contribution takes what cash can give it, in the order the accounts are listed. A contribution that cash cannot cover is funded in part rather than by an overdraft that does not exist, and the plan says so.
  • Home prices over time · A home's value is projected by growing it at one assumed rate, 3.5% a year by default, which is PWL Capital's 1% real return on a house plus 2.5% inflation. It is an editable assumption, not a forecast, and the Simulation view shows how widely a real home's value varies around it. A home added to a plan starts at $600,000 with 20% down until you enter its own figures.
  • How a mortgage payment is worked out · A fixed-rate Canadian mortgage compounds its interest twice a year, not monthly, so the monthly payment comes from a rate slightly lower than the quoted rate divided by twelve. The default rate is 4.27%, and the rate stays fixed for the whole amortization.
  • Interest on borrowed money · Interest is deductible against rent only for money used to earn income from property, judged by what the money is used for now and not by what secures the loan. A refinance keeps the use of the loan it replaces, and a repayment reduces the deductible and non-deductible parts together.
  • Money you have not told the plan to invest · Income the plan does not spend and you have not allocated to an account is held as cash, earning the posted savings rate. It is not swept into an investment account, and it never over-fills a registered one.
  • Monte Carlo: many market histories · The Simulation page runs the plan 500 times with investment returns and home prices drawn at random each year, then shows the spread of net worth and how many runs finish, borrow or run out of money.
  • Net worth, as the plan counts it · Net worth is everything the plan holds (cash, investment and registered accounts, homes at market value) minus mortgages, credit lines, debts and tax owing. It is not reduced for selling costs or for tax on money still in an RRSP.
  • Renting out a suite · Rent from part of your home is taxable income. The costs of the whole home are deductible only for the rented share, mortgage principal and land transfer tax are not deductible, and a loss offsets other income when the rental is run to earn money. A lender may count part of the rent when you apply.
  • Scenarios and life events · The Scenarios page lets you drop dated events onto a copy of your plan, such as a job loss, a market drop or a rate jump, and see where net worth ends up. Each event is a change to the plan run through the ordinary projection, not a separate calculator.
  • Selling a home · A sale turns the home's projected market value into cash after selling costs (your province's typical commission, the sales tax on it and legal fees) and the mortgage payout. The gain on a principal residence is exempt from tax, apart from the part that was rented out when the exemption does not cover it.
  • Stress tests · A stress test reruns the whole plan with one thing made worse, such as a higher mortgage rate at renewal or a year of lost income, and reports how far final net worth moves and whether the plan still pays its bills. It carries no probabilities.
  • The First Home Savings Account · $8,000 a year with one year of carryforward and $40,000 for life, deducted from income and withdrawn tax-free for a first home. The refund is credited the following April, and the account winds up into an RRSP if it is never used.
  • The Home Buyers' Plan · Up to $60,000 out of an RRSP, untaxed, for a first home — but it is a loan to yourself, repaid over fifteen years, and a missed repayment is taxed as income that year.
  • What a house costs to hold · Property tax, maintenance, insurance and utilities are estimated as rates against the home's value, with sourced defaults. Property tax then grows with inflation, maintenance and insurance with the home's value, and utilities with inflation.
  • Where the down payment comes from · The cash to close is assembled from the plan's projected balances in a fixed order — FHSA, TFSA, unregistered, HBP, then taxed RRSP — and each dollar is priced for what taking it costs.
  • Would a lender write the mortgage? · Lenders test a mortgage against two ratios, GDS at 39% and TDS at 44% of gross income, using a stress-test rate of the contract rate plus 2 points or 5.25%, whichever is higher. All the Numbers runs this screen on the income entered for today.

References

  1. ↑My Own Advisor, "Common retirement drawdown orders" (2026-08-28): NRT is "the default logic in fact for many professional software programs"; our convention · A short month draws cash first, then non-registered accounts, then RRSPs, then TFSAs ("NRT"), until the household sets its own order; each withdrawal is taxed by its own account's rule; an FHSA or RESP is never drawn for spending; reported on the run · effective 2026-09-25
  2. ↑Our convention; CRA RC4466: TFSA withdrawals "will only be added back to your TFSA contribution room at the beginning of the following year"; CRA, Tax rates on withdrawals: "When you withdraw funds from an RRSP, your financial institution withholds the tax", and the withdrawal goes on the return; ITA 146(1) "unused RRSP deduction room" adds nothing back for a withdrawal · With the default withdrawal order, while an RRSP's owner earns a salary in the plan a short month draws that RRSP (and the RRIF it becomes) only after every other account, so the TFSA before it; from the month they retire it takes its place in the default order. A first home is still paid from the FHSA and the Home Buyers' Plan first. A household that sets its own order gets exactly that order; reported on the run · effective 2026-10-28
  3. ↑CMHC — Calculating GDS / TDS (44% TDS, line-of-credit payments); OSFI B-20 Principle 4 (iv); Bank Act s.418(1); PWL Capital Table 3; our convention · A plan that runs short after its own withdrawal order borrows — each home's equity line first, then an unsecured line — at most what a lender would approve: the line limits and the total debt service limit on gross income; the minimum payment is the interest; spare cash repays the dearest line first; a sold home's line is repaid at closing. When no lender would lend more, the projection stops. · effective 2026-10-01
  4. ↑Our convention, a choice the household makes; CRA, Tax rates on withdrawals: an RRSP withdrawal is withheld and goes on the return, and ITA 146(1) "unused RRSP deduction room" does not add back what was withdrawn. Borrowing costs interest instead, which is not deductible when the money pays living costs (ITA 20(1)(c)) · If you choose it, while you earn a salary a short month that has used everything but the RRSP borrows on a line of credit first, up to the limit you set or what a lender would allow, and draws the RRSP only for what borrowing leaves · effective 2026-11-01
  5. ↑PWL Capital — Financial Planning Assumptions (Market Capitalization Weighted Portfolio), mid-year 2026 data update, Table 3 (Expected Cost of Borrowing) · Default rate on a home equity line of credit a year: PWL's expected cost of a secured line of credit (PWL Capital, Financial Planning Assumptions, Table 3) · 5.13% · effective 2026-08-17
  6. ↑PWL Capital — Financial Planning Assumptions (Market Capitalization Weighted Portfolio), mid-year 2026 data update, Table 3 (Expected Cost of Borrowing) · Default rate on an unsecured line of credit a year: PWL's expected cost of an unsecured line of credit (PWL Capital, Financial Planning Assumptions, Table 3) · 8.38% · effective 2026-08-17
  7. ↑OSFI — Guideline B-20, Residential Mortgage Underwriting Practices and Procedures: "limit the non-amortizing HELOC component of a residential mortgage to a maximum authorized LTV ratio of less than or equal to 65 percent" · Most a home equity line of credit may reach, as a share of the home's value (OSFI Guideline B-20, Principle 4 (iv)) · 65% · effective 2017-10-31
  8. ↑Bank Act s.418(1): a loan on residential property that, "together with the amount then outstanding of any mortgage having an equal or prior claim against the property, would exceed 80 per cent of the value of the property" is barred · Most a mortgage and home equity line may reach together, as a share of the home's value (Bank Act s.418(1); OSFI B-20) · 80% · effective 2007-04-20
  9. ↑CMHC — Calculating GDS / TDS ("CMHC restricts debt service ratios to 39% (GDS) and 44% (TDS)") · TDS maximum (insured) · 44% · effective 2021-07-05
  10. ↑CMHC — Calculating GDS / TDS (actual heat costs, else "a reasonable estimate") · Heating estimate for GDS (lender convention) · $125 · effective 2026-01-01
  11. ↑CMHC — Calculating GDS / TDS: "If applicable, 50% of the condominium fees must be included in the GDS and TDS calculations." · In the debt-service test, half of any condominium fee counts as a housing cost (CMHC) · 50% · effective 2018-03-31
  12. ↑CMHC — Calculating GDS / TDS: "For secured lines of credit, factor in an amount corresponding to at least a monthly payment on the outstanding balance amortized over 25 years using the contract rate." · In the debt-service test, a secured line of credit counts as its balance amortized over 25 years at the contract rate (CMHC) · 300 · effective 2018-03-31
  13. ↑CMHC — Calculating GDS / TDS: "For unsecured lines of credit and credit cards, factor in a monthly payment amount corresponding to no less than 3% of the outstanding balance." · In the debt-service test, the monthly payment counted on an unsecured line of credit or credit card, as a share of its balance (CMHC) · 3% · effective 2018-03-31
  14. ↑CMHC — Calculating GDS / TDS ("up to 100% of gross rental income from the secondary suite") · Suite gross-rent add-back, 2-unit owner-occupied (insured) · 100% · effective 2023-01-01