A Surefire Plan to Saving a Downpayment
Team Gill • January 19, 2021
If you’re looking to save money for a downpayment; or to save money for anything really, it all starts with clarity. First, you want to get clarity around your income, then clarity around your expenses, and then you need a plan. And although this might seem fundamental, sometimes going back to basics is the best place to start.
Income.
If you’re going to be saving money, you’ll need to identify just how much money you’ve got to work with! You need to get clarity around your income. The best way to do this is to write it down. This could be with paper and a pen or on a spreadsheet; whatever way works best for you is fine. The goal is to have all your income in front of you!
If you’re on a fixed income or receive a salary for work, your calculations might be pretty simple. However, don’t forget to include any variable income sources. This could include work income like overtime, bonuses, or shift differentials. Or it could include other income sources like an annual tax return, child tax or government benefits. Spend time here and make an exhaustive list of all your income sources.
Expenses.
While income is on one side of the coin, expenses are on the other. Once you’ve identified what you have to work with, the next step is to figure out just how much you actually spend to maintain your current lifestyle.
Start by identifying your regular bills, then look at your discretional spending. If you have a budget already in place, you should be able to identify these numbers easily. If not, you can expect that getting clarity around your expenses will be very enlightening. It might be worth looking through a few months of bank statements to see just how much money you actually spend.
Information is the key to finding clarity. The more information you have, the more equipped you will be to save money. Just like your income, write down all your expenses. This will allow you to assess your spending and then prioritize where you spend your money.
Put together a plan.
Once you know your income, and once you’ve identified all your expenses, you need a plan on how to make more money than you spend. And although that sounds so simple. It really isn’t. The majority of Canadians spend more money than they make and incur debt. If you’re spending more money than you are making, you need to increase your income or decrease your expenses. How you do that is completely up to you.
However, the truth is, most people work better when they have a plan to follow. So if you’re still reading this article, chances are you’d like to buy a home in the near future, and you’re looking for guidance as you save for a downpayment. I can help.
As an independent mortgage professional, I can actually help you navigate all aspects of mortgage financing. Because just like saving for a downpayment is about managing income and expenses, so is getting a mortgage. Income and expenses, along with credit and property, are what a lender looks at when assessing your suitability for a mortgage.
While you might assume that putting together a plan for how to save a downpayment is where you should start, it might not be the best place to start. Saving money takes time, and while you're doing that, there are other things you can be doing at the same time to increase your chances of qualifying for a mortgage sooner.
Contact us anytime to get started. Together we can assess your financial situation and put together a plan to not only save for a downpayment but to get you into a mortgage sooner.
Share
Sign up to to our newsletter to hear weekly updates on market news, timely buyer/seller tips, and up to date rates
Mick & Sheila Gill
CANADIAN MORTGAGE EXPERTS
RECENT POSTS
Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.
If you've been a homeowner for many years, it is likely your property value has increased significantly. One advantage of homeownership is the opportunity to build equity. Home equity growth, partnered with the security of living in your own home, is why most Canadians believe homeownership is the best choice for them! While home equity is one of your greatest assets, accessing home equity is often overlooked when putting together a comprehensive financial plan. So if you’re looking for a way to access some of your home equity, you’ve come to the right place! Simply put, home equity is the actual market value of your property minus what you owe. For instance, if your home has a market value of $650k and you owe $150k, you have $500k in home equity. If you want to stay in your home but also access the equity you have built up over the years, there are four options to consider. Conventional Mortgage Refinance Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance. Let’s say your property is worth $500k and you owe $300k on your existing mortgage. If you were to refinance up to 80%, you would qualify to borrow $400k. After paying out your first mortgage of $300k, you’d end up with $100k (minus any fees to break your mortgage) to spend however you like. Even if you paid off your mortgage years ago and own your property with a clear title (no mortgage), you can secure a new mortgage on your property. Reverse Mortgage A reverse mortgage allows Canadian homeowners 55 or older to turn the equity in their home into tax-free cash. There is no income or credit verification; you maintain ownership of your home, and you aren't required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell. Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, you can access a lesser amount of equity depending on your age. The interest rates on a reverse mortgage can be slightly higher than the best rates currently being offered through standard mortgage financing. However, the difference is not outrageous, and this is an option worth considering as the benefits of freeing up cash without mortgage payments provides you with increased flexibility. Home Equity Line of Credit (HELOC) A Home Equity Line of Credit allows you to set up access to the equity you have in your home but only pay interest if you use it. Qualifying for a HELOC may be challenging as lender criteria can be pretty strict. Unlike a conventional mortgage, a HELOC doesn't usually have an amortization, so you're only required to make the interest payments on the amount you've borrowed. Second Position Mortgage If the cost to break your mortgage is really high, but you need access to cash before your existing mortgage renews, consider a second mortgage. A second mortgage typically has a set amount of time in which you have to repay the loan (term) as well as a fixed interest rate. This rate is usually higher than conventional financing. After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it's paid off. If you’re looking for a way to access the equity in your home to free up some cash, please get in touch. You’ve got options, and we can work together to find the best option for you!
