12 Oct
Buying a house in Canada requires a deposit, which is usually 20% or more upfront. To find this kind of money in your budget is not always easy, even if you are a frugal saver. At Mortgages, Mortgages, we specialize in home financing and all that it entails. One of the questions we receive most frequently from our clients is, “How can I affordably save for a down payment?” Often, we recommend the RRSP home buyers in Canada method; however, there are many ways you can begin saving for your first home.
Here, we have compiled a list of advice from our financial experts on ways to get started. If you have any questions about applying for a mortgage or obtaining more financial help during your search for a house, we are happy to help.
1. Count on your Canada Savings Bonds
One way, aside from the RRSP home buyers in Canada method, is to turn to Canada Saving Bonds. Unfortunately, this method only works for those who already have bonds purchased, as they stopped being available after 2017. If you are lucky enough to have invested this way, however, your bonds are safe and will continue to mature and earn interest once or twice a year until they reach their limit. After this point, your initial bond price is returned as well, fetching you a handsome sum for your efforts.
Canada Savings Bonds began in 1945 as a way for the federal government to fund projects and fill deficits without borrowing abroad. The denominations for these bonds could be as low as $100 and allowed Canadians to cash in on interest over the years the bonds matured.
2. Commit to high-interest savings
There are various types of savings accounts available through traditional banks, and the high-interest savings account is one that many future homeowners choose to develop a down payment. This savings account is like others in that it provides space to save your cash. However, it develops interest at a higher rate than others.
As most financial endeavours go, high-interest savings accounts have a catch, which is why many turn to RRSP home buyer’s options in Canada instead. The fees associated with these accounts are high, making them an impractical solution for a down payment unless you are planning on leaving the money until it is time to buy.
3. Save your windfall gains
Windfall gains are any large unexpected money that falls into your lap. This could be a tax refund at the end of the year, a holiday bonus cheque at work, or an inheritance. Whatever the cause of the sudden influx of money, keeping most of this large financial resource in savings will go a long way toward developing a down payment.
Many savers hoping to buy a house rely on long-term investments of 10% from paychecks, interest rates from savings accounts, and other slow-grow gains. A windfall gain gives you a large amount at once, which could be tempting to spend on bills and buys. Consider keeping the whole or most of the amount for your future down payment.
4. Try a GIC
There are many methods of investment outside the RRSP home buyers in Canada option. This includes a GIC, or a Guaranteed Investment Certificate. A GIC, as the name implies, has a guaranteed return on your investment. However, this is an extremely slow-grow, low-yield investment, which is why it can be guaranteed. Is it worth the effort? Absolutely, but this is something to start young and use later.
For young Canadians looking for ways to begin saving a nest egg for a down payment, starting a GIC now is a great option. As the GIC grows, you can count on the money it brings to pay toward a future down payment when the time comes to buy. If you are looking for a long-term fix on a future home-buying plan, this could work for you.
5. Build a better budget
Budgeting sounds easy, but in today’s economy, it can be quite difficult to cut back and put money aside. Budgeting is tough for everyone, and fortunately, you can get help from a financial expert at your bank or, in some cases, with your mortgage broker. Budgeting is a practical step in obtaining a down payment for a home because it allows you to see where you are spending unnecessarily.
Unnecessary spending should be thought of as a hold in a boat. No matter how fast and hard you work to bail out the water, the boat will keep sinking unless you plug up the hole. Developing a realistic budget for your income and expenditures will get you on track toward plugging the hole and reaching your goal as a homeowner.
6. RRSP for home buyers in Canada
Finally, as we have mentioned it briefly above, the RRSP home buyers in Canada option is a popular one for good reason. If you are a first-time homebuyer, you are entitled to withdraw up to $35,000 tax-free from your RRSP. An RRSP is a Registered Retirement Savings Plan for Canadians to build up and use when they retire from the workforce. As you develop this financial package throughout your working life, it accumulates quite quickly and can come in handy in situations like buying a house.
As with all money withdrawn from an RRSP, you will be required to put the money back for its eventual use as a retirement fund. However, in the case of a first-time homebuyer, the amount borrowed must be returned within 15 years to remain tax-free.
Contact a Mortgage Specialist Today
If you are interested in buying a home now or in the future and are looking for options to save for your down payment, we can help. Mortgages, Mortgages is a leader in home financing, and we have worked with clients across Canada to develop worthwhile and practical methods of home financing. For more information on our services, we invite you to contact us at 1-866-307-0747.