A down payment for many can be their biggest savings goal ever. We know that buying your first home is a major life goal, and we want to break down some options of where to keep those hard-earned savings.
- Registered Retirement Savings Plans (or RRSPs), are a really good way to help you save for your down payment, but there are implications.
If you are a first time home buyer the Canadian government’s Home Buyers’ Plan (HBP) allows you to borrow up to $25,000 from your RRSP for a down payment, tax-free. If you’re purchasing with someone who is also a first time home buyer, you can both access $25,000 from your RRSP for a combined total of $50,000.
If on the other hand you are looking to purchase your second or third home, it is allowable to use towards a down payment only if your repayable HBP balance on January 1st of the year of the withdrawal is zero and you meet all the other HBP eligibility conditions.
You are allowed to utilize your RRSP towards down payment but you have to pay it back. You are not taxed with the same implications, since you are using it for down payment. People have to remember you have 7 years to pay that money back. If you don’t pay it back then you will be taxed!
- High Interest Savings Account is another great option. The challenge there is it’s easily accessible. You have to be a little more disciplined if you are putting money in the saving account
- Tax Free Savings Account (or TFSA) is a hybrid right between an RRSP and a High Interest Saving Account. You don’t pay tax on the interest that you earn on it, but you do have a tax implication if you cash it in. TFSA aren’t as accessible as a High Interest Saving Account, however you can withdraw from your TFSA anytime, you just have to do the request for it and you can do it online.
TIP” Have a clear down payment savings goal. Plan to put at least 10% of the final value fee down. If you can, go for 20%. Why? Because putting down 20% means no private mortgage insurance (PMI)—an extra cost your lender tacks on to your monthly payment just in case you don’t make payments on your loan.