22 July 2011

It’s recommended to keep a detailed track of all your expenses for a few months. This way you’ll be able to see at what areas you may cut back. And we mean really detailed track, including not only rent, utility bills, and transportation costs, but also every dime spent on groceries, coffee, drinks at the bar, laundry, cab rides etc. It’s amazing how surprised you’ll be when you see how much you spent on some snacks or impulse purchases at convenience stores.

Creating a savings account
It’s better to create a separate savings account in order to avoid the temptation to spend the money at once. Of course, you need the one with the highest interest rate and little or no fees.
After that you should set up regular automated transfers from your regular account to the savings account. Only $200 every two weeks will add up to over $5,000 in a year. You can also make the balance grow even faster by adding some additional funds.

Longer-term savings
If you think you’ll need a few years to save up for your down payment, then you may be interested in the following options: Guaranteed Investment Certificates (GICs), mutual funds or a Tax-Free Savings Account (TFSA).

Using your RSPs
According to the federal Home Buyers’ Plan, you’re allowed to withdraw up to $25,000 from your RSPs (it means up to $50,000 for a couple) to use them for your down payment. It’s quite profitable, because there are no penalties for it. Then you’ll have 15 years to pay the money back. Each year you’ll pay one-fifteenth of what you withdrew. It should be noted that in case the payments are made in time, they are not included into your taxable income. But if you miss at least one of them, it will be added to it.

The amount of your down payment
The minimum down payment amount is 5% of the house sale price. But if you want to avoid buying the mortgage default insurance, you’ll have to pay down 20%.
Of course, there are certain additional expenses, such as lawyers’ fees, land transfer tax, title insurance, moving costs and others. But only 2%-3% of the sale price will cover them, so don’t go to extremes cutting your expenses.