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Buying your first home

One of the largest expenses you may make in your lifetime is a home. It is in fact the largest loan most of us will ever obtain. It is important to plan it well in order to minimize your payment schedule, which will likely be spread out over decades.

Not only is it important to find the right mortgage solution at the best possible rate and, of course, a home that suits your budget, but it is also very wise to try to maximize your down payment right from the start.

If you plan to purchase a home within a few years, start saving right away by implementing a systematic savings plan. If, however, you have neglected your savings and are now ready to buy your home, here are a few options that can help you make a smart financial decision.

You have an RRSP account

Retirement is a long-term project. If you still have several years to go before that magical moment, you can consider using your RRSP to make a sizable down payment on your first home.

The Home Buyers’ Plan (HBP) is a Canadian government program that lets you withdraw funds up to $25,000 from your registered retirement savings plan (RRSP) to purchase or build an admissible residence.

You must have contributed funds to your RRSP for at least 90 days before being allowed to withdraw any amount under the HBP. Then, you have up to 15 years to reimburse the amount to your RRSP. Each year, you must at least contribute 1/15 of the total withdrawn sum, until your HBP is fully reimbursed. Your annual Notice of Assessment will tell you exactly the amount you need to contribute back to your RRSP. If you cannot make that contribution, you must include that amount in your taxable income for that particular year, as if you had withdrawn from your RRSP for any other reason than a home purchase.

You have an RRSP and a TFSA

The Tax-Free Savings Account (TFSA) allows you to earn investment income free of taxes. Contributions are not tax deductible, but any return accumulated on your investments are free of taxes, and any amount you withdraw from a TFSA is also non taxable!

As such, if you have already started to contribute to a TFSA and have accumulated a certain amount, you could use that money to substitute or fill the gap of the HBP.

Another way to proceed would be to maximize your RRSP contributions and use your tax return to contribute to your TFSA. You would then accumulate your down payment more quickly and have two savings vehicles!

If you have already owned a home, it is possible that you may not be eligible to the HBP. If that is the case, withdrawing from your TFSA would be necessary.

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