It is not easy to assess Canada’s current housing market. We hear doom and gloom news stories about decreasing sales, difficulties qualifying for a mortgage and ever-increasing interest rates.
It’s not surprising that many potential buyers are holding on to their down payment and taking some time to assess the market.
So, where can you invest your down payment in the meantime to help boost your savings?
Living in Canada means you need to offer a minimum down payment of 5% to apply for a mortgage. But, if you’re not rushing to buy a house, there are a huge variety of investment options available to help you potentially grow your savings, including stocks and ETFs.
But, please remember that it’s virtually impossible to find a risk-free investment option that gives you a high return. Both stocks and ETFs entail high risks.
Your down payment savings could be needed any time, at short notice. It’s a good idea to keep your money in an accessible account that is less likely to drop its value.
As with any investment decision, it’s vital to spend some time assessing your down payment investment option, with full knowledge of potential risks.
Down payment investment options
Saving and chequing accounts are a safe and secure option to park your investment without any worries. But, most banks don’t offer any interest on these accounts.
High interest saving accounts
Saving accounts are a viable option for your down payment money. High-interest saving accounts offered by online banking institutions typically have lower carrying costs than Canada’s Big Five banks. They usually offer a high-interest rate on savings.
However, many people are understandably still hesitant to use online banking services. Becoming a member of the Canadian Deposit Insurance Corporation (CDIC) may solve your problem, as it fully insures your money up to $100,000.
Guaranteed Investment Certificate (GIC)
This is another safe option available for down payment investment. Offering a guaranteed return within an allocated time span, a GIC reduces the likelihood of financial investments with a low return rate. But, it charges you a hefty penalty if you need to access to your money earlier.
This option is all about your willingness to accept risks. It can be a good strategy for those with no strict time limits, or a high level of savings. You could use a small portion of your down payment for your investment account and wait for it to mature.
You probably know that if you’re buying a house for the first time, your RRSP Home Buyer’s Plan (HBP) allows you to withdraw cash up to $25,000, for the down payment.
The Home Buyer’s Plan considers you a first-time homebuyer if you’re a Canadian resident and have not been living in a house you own during the last four years.
HBP makes buying a house with a spouse even more convenient as both people can withdraw $25,000 separately from their individual accounts, meaning you could possibly access $50,000 to help you purchase your new home. However, you are required to repay this amount within 15 years.
Tax-free saving account
A Tax free saving account is not really a saving account, it’s more like a saving vehicle. Tax Free Savings Accounts are created for holding your accounts and assets. They’re appropriate if you’re planning to make a long-term investment, but could also be suitable to help you save money to buy a home.
It’s really important to have realistic expectations when it comes to saving money for a down payment. Saving your money via different investment options may sound complicated, but it can help to bring you peace of mind and grow your savings. In most cases, you have the option to quickly access your cash when you make the decision to buy your new house.