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Saving For A First Home Just Got Easier
By Stefan Walther | April 16, 2023
Without a doubt, homes are becoming more expensive.
In 1975 an average, newly built three-bedroom bungalow in Thunder Bay could be purchased for $65,000. In 2000, 25 years later, this same home was worth about double, around $130,000. In another 20 years, bringing us close to present day, this home is worth close to $400,000.
I share the above info from personal experience, such was my childhood home on the city’s northside. See photo below, circa 1980.
And during the peak of the pandemic realty frenzy, some average 40-year-old bungalows were even selling at close to half a million. To say nothing about today’s completely new builds, priced hundreds of thousands higher. Well-maintained century homes in Thunder Bay have also climbed in value.
And to make affordability more difficult, mortgage rates have risen to their highest in 15 years, a buyer must pass a mortgage stress test in case rates increase further, and a downpayment requirement can be 20 percent of a home’s purchase price.
Things today can look pretty bleak for a first-time home buyer. Will they ever be able to afford a home?
Don’t despair — there is hope.
A buyer looking to purchase their first home may, now more than ever, have to play a bit of the long game, but there is definitely hope.
Unbeknownst to many, the government rolled out a new program just two weeks ago, on April 1, offering these buyers an extra advantage in the form of the First Home Savings Account (FHSA), a tax-free opportunity to save for that first big home purchase.
Three-bedroom bungalows have soared in price over the years. Pictured here, the childhood home of the author, founder and owner of ThunderBayHouses.com, on the city’s northside, circa 1980.
How it works: Prospective first-time home buyers can open a new FHSA and deposit up to $8,000 per year, over a 15-year period, to a total of $40,000.
They would see benefits now — as well as later. They can claim these amounts as deductions against their taxable income, so they would pay less taxes now. And when the money is withdrawn for that highly anticipated first new home, the amount is not taxed.
With the FHSA, a first-time home buyer benefits from tax-deductible contributions and tax-free withdrawals.
Essentially, money goes in like an RRSP, money comes out like a TFSA (Tax-Free Savings Account).
If you figure an average tax rate of 25 percent, a first-time home buyer could save up to $20,000 in payable taxes — savings of $10,000 when contributing to the FHSA, savings of $10,000 when withdrawing.
Furthermore, like an RRSP and TFSA, a big goal, of course, is growing the investment while the money is within the FHSA.
These earnings are also shielded from being taxed, so more icing on the cake.
Don’t have money to contribute into the new FHSA? You still might, if you already have RRSPs or RRIFs.
If you are a prospective first-time home buyer and you feel you won’t have money to contribute into the new First Home Savings Account, but you have RRSPs or maybe even RRIFs, these can be directly transferred into an FHSA with no immediate tax consequence.
Likewise, you can also make a direct transfer in the opposite way, from the FHSA into an RRSP, with no immediate tax consequence. Someone may choose to do this if they open an FHSA but later decide not to purchase that first home.
But you might have to wait a bit. While the government made the FHSA available April 1, Canadian financial institutions are still integrating the program into their portfolio offerings.
RBC Mortgage Specialist Jessica Coley is an advertising partner of ThunderBayHouses.com and proud sponsor of the Market Insider — see RBC’s First Home Savings Account and be sure to sign up for notifications, E-mail Jessica with any questions, or call her at 807-476-4867.
For more information on the new FHSA, see First Home Buyers Account on the Government Of Canada’s website.
And don’t forget the Home Buyers’ Plan (HBP), another great tool for purchasing a first home (or if you have not lived in a home you owned for four years), which allows someone to withdraw funds, up to $35,000, from an RRSP without having to pay taxes, in order to use as a downpayment. The amount must be paid back into an RRSP within 15 years, unlike the FHSA which does not need to be repaid.
Your author, the founder and owner of ThunderBayHouses.com participated in the HBP when he purchased his first home. For more information, see Home Buyers’ Plan on the Government Of Canada’s website.
In today’s market of higher home prices and increasingly squeezed affordability, the FHSA is another great tool to help many achieve their milestone dream of that first new home.
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Copyright 2023 — All articles appearing on the ThunderBayHouses.com Market Insider are completely original, written and created by founder and owner Stefan Walther, unless otherwise noted, and, as such, are copyright 2023 by Walther Enterprises. Material may not be reproduced in any form without express permission. All rights are reserved.
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