How to Plan your Down Payment
Tags: #downpayment #IssuesforDownpayment #FirstHomeBuyer
Saving for Down payment could take longer time and the making strategies to save on your monthly expenses could beyond the expectations. But Canadians have different ways to access the down payment by number of investment savings accounts that government has started that could put you ahead towards buying your home.
Unlike a usual savings account, an investment account gives specific tax and interest benefits a normal account received, making an investment savings account is a greater fantastic way for withdrawing money for a down payment of a house.
- Registered Retirement Savings Plan (RRSP)
When you contribute to an RRSP, these funds are exempt from tax, and capital gains as long as these funds are in your plan. You only have to pay tax when you make withdrawals or receive payments from your RRSP.
The RRSP investment can reduce your net income, but would help in lower taxes that you pay to government, giving you a tax break. However, RRSP have a particular amount that you could invest in it annually according to your income.
Under the RRSP, you have access to the Home Buyers’ Plan (HBP), which allows First- Home buyers to withdraw $35,000 tax-free dollars from their RRSP towards buying a home. However, you must pay withdrawn money in first 15 years otherwise you have to pay taxes on it as well.
So, if you have money in RRSP account, don’t hesitate to use it as your Down payment towards your first home in Canada.
- Tax-Free Savings Account (TFSA)
TFSA contribution is tax free, and you would not have to pay taxes upon withdrawal of money from TFSA account unlike the RRSP account. These funds are also exempt from taxes, But TFSA would not contribute to your taxes like RRSP.
Some of the important thing things to keep in thoughts with this, is deposits and withdrawals are free of cost. So, you won’t be taxed on them, and cash that’s withdrawn or any investment increase isn't taxed. Like TFSA and RRSPs, it permits account holders to shop it as cash, and it combines the advantages of a TFSA and an RRSP. This is for buying your first home.
- First Home Savings Account (FHSA)
The First Home Savings Account has been set up by the federal government to help Canadians purchase their first home. It is basically savings account that combines the tax benefits of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP) for the first-time home buyer.
Similarly, TFSA or an RRSP, there is capped amount that you can invest in FHSA account as well. Users can put up to $8,000 a year into an FHSA, and maximum up to $40,000 in their lifetime. There is no set up frame of 15 years to repay the amount withdrawn from FHSA account like RRSP. However, if you do not use this money to buy your first home, it will be automatically transferred to RRSP or a Registered Retirement Income Fund (RRIF).
However, always consult or hire a REALTOR if you’re looking to buy your first home.
The information in this blog should not be taken as financial or legal advice. Treat it as informational purposes only.
