Posted on
October 16, 2023
by
Jill Renshaw
Three Great Ways To Save Money For Your First Home
It’s no secret that buying a house or condominium is a challenge these days. In addition to the cost of real estate, the Bank of Canada has been raising interest rates since March of 2022. Buyers are feeling the pinch these days and we wanted to show you some of the different ways to save money for your first home.
When you’re saving money to buy a home, it makes sense to use the financial instrument that fits your circumstances. The best are TFSAs (Tax Free Savings Accounts), RRSP HBPs (Registered Retirement Savings Plan Home Buyer’s Plans) and FHSAs (First Home Savings Accounts). Here’s a look at the pros and cons of each. Talk to your financial advisor about which one is right for you.
TFSA
In a Tax Free Savings Account, you invest your eligible contributions and use them to purchase whatever you like, including a home. Canadian residents of 18 years or older with a valid SIN can contribute up to $6,500 annually.
Pros:
- There is no lifetime contribution limit.
- Funds in the account grow tax-free. You can invest your down payment savings and will never be taxed on the returns.
- Unused contribution room can be carried forward.
Cons:
- Contributions are not tax deductible.
RRSP HBP
The Home Buyer’s Plan allows you to withdraw from your RRSP to buy or build a qualifying home. Canadian residents who have earned income and filed a tax return can contribute.
Pros:
- You can withdraw up to $35,000.
- Eligible contributions are tax deductible.
- Within the plan, investments can grow tax deferred.
- Unused contribution room can be carried forward.
- No lifetime contribution limit.
Cons:
- The funds must be paid to the RRSP over 15 years, beginning in the second year after withdrawal. If payments are not made on schedule, the withdrawal amount becomes taxable.
- You cannot use the HBP if you are older than 71.
FHSA
Investments within a First Home Savings Account are used to purchase a home. Canadian residents between the ages of 18 and 71 who are saving for their first home qualify.
Pros:
- Funds in the account grow tax-free.
- Eligible withdrawals do not need to be paid back.
- Contributions are tax deductible.
- Qualifying withdrawals are not taxable.
- A FHSA can hold cash, GICs, and Mutual Funds.
Cons:
- The yearly contribution limit is $8,000.
- The lifetime contribution limit is $40,000.
- You can only hold a FHSA for 15 years, until you turn 71, or the year following your first withdrawal.
- Withdrawals not made to purchase a qualifying home are taxable.
Whether you are a first-time buyer, a family in need of a bigger home, or a downsizer thinking of the condo of your dreams, you need an experienced agent in your corner. Don’t hesitate to reach out. We would be happy to help you explore your options.
