5 Tips to Save for a Downpayment Faster
Considering that interest rates are at historic lows, many Canadians believe that now is an excellent time to get into the property market. However, with property prices continuing to increase, saving up for a down payment is proving to be a difficult endeavor, regardless of where you reside in Canada. It’s considerably more difficult if you’re already responsible for paying rent on a monthly basis. However, the good news is that saving for a down payment is less difficult than you would imagine if you follow a few simple procedures.
How much money will I require as a down payment?
In order to acquire a property in Canada, you’ll need to put down a down payment of at least 5% of the total purchase price. This, however, will not be your only up-front expenditure. In addition to the down payment, homebuyers should budget an additional 1.5 percent to cover closing expenses, which include legal fees and title insurance. In order to acquire a $300,000 property, you’ll need at least $19,500, or 6.5 percent of the purchase price, to put down as a deposit.
What Is the CMHC Insurance Program?
For any mortgage with a down payment of less than 20 percent, default insurance, also known as CMHC insurance, must be purchased to protect the lender. The expense of default insurance is passed on to the house buyer in the form of a CMHC payment, despite the fact that default insurance is supposed to protect mortgage lenders.
In most cases, the CMHC premium is included in the mortgage financing, so it is not an additional price that you will have to pay in addition to the mortgage loan. Visit the Canada Mortgage and Housing Corporation website for additional information about default insurance. A down payment of 20 percent is required to avoid being charged a CMHC premium by the lending institution. A conventional mortgage is what this is referred to as. Although making a higher down payment will save you a significant amount of money in the long run, raising the cash will require some forethought and organization.
Methods of Saving for a Down Payment
The following is a list of five different strategies to save money for your down payment. Keeping these steps in mind, and staying the course, you will attain your savings target far sooner than you anticipate. Ready? Let’s get started!
1. Set a savings goal for yourself.
Before you begin saving, you must establish a target amount for your down payment. Determine how much you intend to spend on a property, what percentage of the purchase price you will pay upfront, and when you intend to close on the deal. Once you understand these concepts, you can calculate how much money you’ll need to save each month in order to attain your goal by a specific date. If you want assistance, you might consider contacting a mortgage broker or a realtor in the region where you wish to purchase a home.
2. Reduce your expenditures.
Often, the quickest and most effective method to begin saving is to reduce your expenditure. This is especially true when you’re saving for something significant, such as your first home. If you want to enhance your cash flow, start by reviewing your bank statements from the previous three months. You might be amazed at how much money you’re wasting on frivolous expenses, such as eating out or your daily Starbucks habit. However, when you are trying to save money in order to get serious about it, even the smallest expenditures may add up to a significant amount of money.
3. Make your savings routine.
Once you’ve determined how much money you’ll need to set aside each month, you can make the process more efficient by setting up a monthly transfer from your chequing account to a high-interest savings account (more on that later). This will guarantee that you pay yourself first, as you learn to live off of the money that is left over after paying your bills.
4. Make a plan for how you will save your windfalls.
You may receive lump sums of money from time to time in addition to your normal paycheque, although this is rare. An excellent example would be a refund of income taxes or a bonus in the workplace. Avoid the temptation to blow these money windfalls on frivolous purchases. Instead, deposit them into your savings account as soon as they are received by you. If you can do this again and over again, you’ll be well on your way to meeting your down payment savings target.
5. Take a loan from your RRSP
What if I told you something you already knew? You can borrow money from your RRSP for the purpose of developing or purchasing a qualified property if you’re a first-time home buyer, according to the federal government. The programme is known as the Home Buyers Plan, and it is intended to make it simpler for Canadians to enter the home market by providing financial assistance. When you withdraw from the programme, there are no penalties; however, you must repay the amount borrowed over a 15-year period. The maximum amount that may be withdrawn under the HBP is $35,000 each year. If you have money in an RRSP, the Home Buyers’ Plan (HBP) might give an instant boost to your down payment funds.
Where Should I Invest the Money I Saved for a Down Payment?
You know how much money you need to put aside, but how should you put it to work for you? Unless you want to wait at least five years before purchasing a property, you should avoid investing in the markets. If we have a prolonged slump in the markets, there is too much danger, and you will not have the time to wait for your assets to return.
In order to save for your down payment, I propose that you place your money in a high-interest savings account. Most financial institutions provide these accounts, with internet banks delivering the best interest rates in the industry by far. Although loan rates are quite low at the moment, there are some very appealing deals available.
Although a high-interest savings account is unlikely to make you wealthy, it is a safe location to store your down payment cash, and you will benefit from not having to pay any fees in this account.
Final Thoughts on Putting Money Toward a Down Payment
So, there you have it: five different strategies to save money for a down payment. There are a variety of other options for raising the funds necessary to purchase a home; this is not an exhaustive list. You could start a side business to supplement your income. You could even receive a present from a close family member in the shape of a portion of your down payment. Whatever you decide to do, my aim is that you will gain more confidence in your ability to save for a down payment as well as in the whole house purchasing process.