Down Payments

Saving money for a new home can be a frightening task, especially when contemplating the down payment. Even though you can now opt for a 0 per cent down payment, it's still recommended by financial institutions that you put down between 10 25 per cent. How do you begin to save such a large sum of money?

One option is to simply open a savings account with your financial institution. Designate an account specifically for this purpose (which means you need to refrain from using this money for anything else). Calculate how much you can afford to put away each month. Then make regular deposits by setting aside a percentage of every paycheque, just as you would pay a monthly bill. Also, with a registered savings plan like a Continuous Savings Plan (CSP) your contributions are tax deductible and can help reduce the amount of income tax you pay.

Another option is to take money that you have already saved and invest in a GIC (Guaranteed Investment Certificate). This way you'll receive a competitive rate of return and if you're lacking in willpower, you have the option to lock your money away for a determined amount of time with a Non-Redeemable GIC. This is a good short term option because your initial investment is protected and the rate of return is generally better than a savings account.

Mutual funds are different from GICs in that your initial investment is not protected with a mutual fund. Your money is invested by a portfolio manager who handles your money together with other investments. As a group, you share in gains and losses. This may seem like a risky option, but because your money is spread over many different investments, the chance that all of these will plummet at the same time is very low. Mutual funds are a better investment over the long term because you can allow it time to fluctuate even though the end result will be positive.

Registered Retirement Savings Plans can now be used towards your down payment as well. For first time homebuyers the Home Buyers Plan allows you and your spouse to withdraw up to $20,000 dollars from an existing RRSP of at least 90 days. Three major benefits: you don't have to pay income tax on the funds, you aren't required to start paying back your RRSP for the first three years? and you have 15 years total (1/15th of the original amount each year) to finish restoring your RRSP fund.

Investing long term will offer more potential for growth because there's more room for fluctuation, but you have to plan well in advance. Short term investments don't fluctuate as much, protecting your capital so you can count on a certain amount of money when you're ready to buy. In each of these scenarios, you?ll want to start saving for your new home as soon as possible. Whether you plan to buy in two years or 10, there is a savings plan to accommodate your vision.