Tag Archives: financial planning
By Parmida Modiri
Accredited Mortgage Professional
Signature Service Financial
Saving up for a home isn’t easy. It takes dedication and some financial planning to be able to afford a property. In order to obtain the best available interest rates Canadian mortgage lenders require at least 5% down payment. With recent comments by Jim Flaherty, Finance Minister, we may even start seeing 10% down payment requirements in future. This means that saving money for a down payment is crucial.
Here are 5 ways to help you start saving towards a down payment:
1. Aim towards stability
Being in the working world isn’t easy, especially contending with competition from other prospective employees. To qualify for a mortgage, it is important to have a stable job, making a sustainable income. Individuals that jump from job to job are more likely to appear risky, so whenever possible, try and keep a consistent job history.
If you find yourself having trouble putting money away, there are few options. You can always start searching for another job with a better pay rate. As well, you can ask your employer for a pay raise. Both can be intimidating situations to be in, but if you find yourself struggling to keep up with household costs, it will be much more difficult to save up for a down payment.
2. Gifts are lovely!
This cannot apply to everyone, but having a family member give a gift of money can greatly help with a down payment of a home. Gifts of money are typically most commonly seen in newlywed couples, who are just starting their lives together looking for a home. Of course, this is not always the case.
Just remember there are some stipulations on gift letters and getting approved for a mortgage. The gift must come from a direct relative (mother, father, sister, etc) and must be deposited in your own bank account prior to closing date of your home purchase.
3. Open a savings account
One of the best ways to save money is to open a savings account and if possible, label it “DOWN PAYMENT”. By depositing regular installments of some extra money into that account, you start saving without even really realizing it. Banks even offer automatic deposit; therefore you don’t even have to think about the money being set aside. As well, you can adjust the amount of money going into this account. For example, if you recently got a raise at work and can afford to put in $100/week, you can find yourself with $5,200 by the end of 2010.
The Government of Canada has recently introduced a new Tax Free Savings Account, which allows Canadian residents to put in up to $5,000 per year. The money withdrawn is tax free and does not need to be repaid into the account (which is different from the Home Buyer’s Plan). For more information on the Tax Free Savings Account, please click here.
4. RRSPs are not just for retirement
Well, actually they are – but the Home Buyer’s plan allows you to use your RRSPs towards your first home purchase. The Home Buyer’s plan is a good way for those first time home buyers with RRSPs to be able to put money down without any income tax deduction. From RRSPs, one is allowed to withdraw up to $25,000 towards the purchase of a home. This money has to be paid back into the RRSP over an extended period of time. If you pay the entire withdrawn amount within 15 years, the original withdrawn amount is tax free.
If you are not a first time home buyer, you can still deduct from your RRSP, up to your deduction limit. The limit is different for every individual. A quick way to find out what your deduction limit is can be done by looking at your latest Notice of Assessment. For 2010, the maximum deduction limit is $22,000. Some individuals may find that they have a larger limit due to the fact that they have not withdrawn any amount from their RRSPs in the last 20 years.
5. Mutual Funds/GICS/Canada Savings Bonds
Putting some of your hard earned money away so you can’t touch it makes it harder for you to spend it. For example, a high interest savings account typically has high charges associated with taking out money. This savings account can even allow automatic deposits to be made on a specific schedule. It makes it less tempting to take out that money for other things.
Other types of bonds have different options as to whether they are lockable or not. But again, these offer sure ways of investing your money and keeping it safe. Although interest rates are low right now, even gaining a small amount of extra money on them are beneficial ways to save up more.
Having sufficient down payment is one of the most important ways of being approved for obtaining a mortgage. With the possibility of stricter requirements, including a 10% down payment requirement, it is important to start planning ahead this year.
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