The ability to buy your own home is one of the most frequent topics of conversation I have with my younger clients struggling to establish themselves. Along with saving for retirement and for your children’s education, it is the financial goal most frequently discussed.
And these days, as we see both mortgage rates and house prices continue to climb, I need to share some new options for saving for your home recently introduced by the Canadian government.
The First Home Savings Account (FHSA) became available in April of this year. As its name suggests, it was introduced by the Government of Canada to help Canadian families save the money they need for the down payment on their first home. And to qualify, you must be between the ages of 18 and 71, a resident of Canada and a first-time home buyer. The same goes for your spouse/partner. And this home must be for your personal year-round use.
Okay, where do I start?
You will want to reach out to an FSHA issuer to set up and register an account. That would be your bank, credit union, trust company, or insurance company. They can help you get started but be ready to provide them with your social insurance number and date of birth. I suspect that if you have an established relationship, they will already have that information.
The FHSA is tax-deductible (like an RRSP) and has a lifetime limit of $40,000 with yearly limitis of $8,000.
Different types of FHSAs basically designate how you have chosen to save or invest that money, much like any other tool for saving your money. Other rules cover when to close the FHSA and how to get money in and out of the account. You need to review these rules as you set up your account to ensure you make the best use of an FHSA in your circumstances.
How can I use my RRSP? And what about the Home Buyer’s Plan?
You can transfer money from your RRSP to your FHSA, but you cannot claim any additional tax deductions on that transfer. And yearly transfer limits also apply.
The Home Buyer’s Plan (HBP) is also available as a transfer from your RRSP. You can use both an HBP and an FHSA while purchasing your house. But because everyone’s financial situation is different, you will need to discuss your situation with your advisor to decide what you should plan to do.
The biggest difference between the two options is that money transferred to an FHSA does not need to be returned, while money redeemed under HBP needs to be repaid to your RRSP. All of these are details you will need to discuss with your advisor.
Buying a house is a big financial decision. Make sure you understand all your options.
While the FHSA Is an exciting new option for first-time Canadian home buyers, the whole process is still a challenging experience. Figuring out the financial details - on top of finding a home that you can afford and enjoy - can be stressful. Finding the right professionals to help you through the process - like real estate agents and financial advisors - will help you make the best of a situation that can be both exciting and stressful. If you want to talk through your options, please feel free to text or call me at (519) 279-0186 or email me at [email protected]. You don’t need to go through this alone.
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