Becoming a First Time Homeowner and saving for a downpayment.
Saving for your first home is exciting but can be intimidating given the many savings options available. Educating yourself on the various savings options will better equip you to create a personalized plan that aligns with your needs and augments your ability to attain your goals.
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To follow is a description of three registered savings plans available to help Canadians achieve their down payment faster. These include, the Tax-Free Savings Plan (TFSA), the Registered Retirement Savings Plan (RRSP), and First Home Savings Account (FHSA). Also provided are links to resources available to help you get started.
Information and Helpful Links
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First Home Saving Account (FHSA) Benefits:
The FHSA is a valuable savings tool for first-time homebuyers. It offers several benefits including tax-deductible contributions, tax-free investment growth, and tax-free withdrawals, provided the funds are used for purchasing your first home.
The FHSA combines the advantages of both the TFSA and RRSP, giving you the best of both plans. You must be 18 years or older to invest and Investors are cautioned to monitor their FHSA contribution limit to avoid over contribution penalties.
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Tax Free Savings Plan (TFSA) Benefits:
Created in 2009 to help Canadians achieve their savings goals, the TFSA is funded with after tax dollars and investment income grows tax free.
TFSAs can be used to fund a down payment on a home but are not limited to this purpose. Unused contribution room accumulates from year to year. Like the FHSA, you must be 18 years or older to contribute and you must know your contribution room to avoid over contribution penalties.
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Registered Retirement Savings Plan (RRSP) and the Home Buyers Plan (HBP) benefits:
The RRSP (Registered Retirement Savings Plan) was designed to help Canadian’s save for retirement while providing a tax deduction for all contributions made into the plan. In 1992 the Home Buyers Plan was introduced to assist Canadians in saving for the purchase of their first home. This plan allows individuals to borrow up to $60,000 against their RRSP ($120,000 for couples) to help fund the purchase/ downpayment of their first home. The borrowed funds will need to be repaid within a 15-year period, starting in the in the second year after the loan was taken out.
How Providence Care Programs Can Help
The advantage savings account offered through Manulife provides an excellent opportunity to save outside of your day-to-day banking, encouraging you to think twice before making a withdrawal. The savings account can be held as a regular savings account or within a registered plan. For example, someone who is looking to purchase a new home in the next 1-3 years and does not want to take on risk could open the Manulife advantage savings account within their RRSP. The benefits would include a tax deduction on contributions along with security and accessibility for when you are ready for the downpayment. The advantage savings account provides high interest rate helping you build your savings faster.