How To Save For A Downpayment

Owning your own home has a lot of payoffs, especially these days when mortgage rates are still among the lowest in 30 years. There are also many housing options available in a wide range of prices. Simply put, you can carry a home of your own for no more than what you would pay in rent. And, unlike renting, your payments go toward increasing the equity in your home.

So, what's stopping you? For most people who have never owned a home before, it's the initial down payment and the ability to keep up with the monthly financial obligations (mortgage payment, insurance, utilities, maintenance). The effort to save for and buy a home may require you to make significant changes in your way of life. For most people, it means changing their spending and lifestyle habits to support the additional costs of saving for, paying for, and maintaining a home.

One of the best ways of saving for a down payment is to take advantage of government programs available to first-time home buyers. A real estate professional can help you understand how these programs work and ensure that you get the maximum benefit possible.

RRSP Home Buyers' Plan

Contribute to a Registered Retirement Savings Plan (RRSP) regularly and to the maximum allowed. The federal government's RRSP Home Buyers' Plan enables eligible taxpayers to withdraw up to $25,000 tax free from their plan to buy or build a qualifying home. The amount of money withdrawn must be repaid within 15 years. You must also agree to occupy the home as your principle residence no later than one year after buying or building it. Once you occupy the home, there is no minimum period of time that you have to live there. If you buy the qualifying home together with your spouse or other individuals, each person can withdraw up to $25,000 tax free. A government form must be completed for each withdrawal. Generally, an RRSP holder can participate in the Home Buyers' Plan only once in a lifetime. For more information visit the Canada Revenue Agency website.

Canadian Tax Free Savings Account (TFSA)

Canadian residents, age 18 and over, have a new incentive to save money, without having to pay tax on the interest it earns. The tax-free savings account (TFSA) allows you to contribute up to $5,000 annually, with $500 increments indexed to inflation. The money you contribute is not tax-deductible, but the income earned from any capital gains, interest, dividends, or other investment income within these accounts will be tax-free. In addition, the savings account will allow you to make unlimited tax-free withdrawals that add to your contribution room for the next year, protect any TFSA earnings from affecting any benefits that are based on income, and contribute to a spouse or common law partner's TFSA. Withdrawals made do not have to be paid back. For all these reasons TFSAs can be a great way to save up for a large purchase such as a down payment on a home. For more information visit the Canada Revenue Agency website.

CMHC 5% Down

While Canada Mortgage and Housing Corporation's (CMHC) 5% down option program doesn't help you save for the down payment, it sure eases the way to home ownership. With as little as 5% down, all home owners now have access to CMHC mortgage insurance. This means CMHC may insure the mortgage on your home (against default in payments) for up to 95% of the lending value of the home. This helps make home ownership a reality for many Canadians who can afford monthly mortgage payments but would have trouble saving for a larger down payment. Eligible borrowers include anyone who buys a home in Canada and occupies it as a principle residence. The mortgage insurance premium is a small percentage of the mortgage loan and can be added to the mortgage or paid on a monthly basis. For more information visit the CMHC's website.

Source: Ontario Real Estate Association

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