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Buying a Home is the Best Investment You'll Ever Make
Everyone needs a place to live. You should make it a priority to buy a home as soon as possible. Otherwise, you are paying rent and contributing to your landlord's financial freedom.
Buying a home is much more difficult now than it was in 1968 when the couple who own this website bought a home.
Saving For A Home
Starting in April 2023, you can open a First Home Savings Account to eventually use when you buy a home. The contributions are tax-deductible, and withdrawals to buy a home are tax-free. See TaxTips.ca Resources below for more home-buying assistance.
Buying a home will probably be the largest investment you will ever make. Carefully consider your current and future needs before you buy, and pick a home that can grow with your family. Every time you sell one home and buy another, there are significant costs such as moving and commissions, and inconveniences such as changing addresses and phone numbers, switching schools, etc. So, do yourself a favour and do your homework. This will save you future hassles and costs.
Proximity to Work and Schools
If possible, it is a good idea to purchase a home within a reasonable distance of where you work (or close to transit), in order to avoid high travel costs and exhausting commutes.
If you have or plan to have children, the proximity to and quality of nearby schools should be taken into consideration.
Paying Down Your Mortgage / Retirement
You should try to ensure that the mortgage on your home will be paid off before your children enter university. This will free up funds for their education.
Everyone needs a debt-free home to live in when they retire. If you retire with no debt and a paid-off home, it is possible to live fairly well even if you have little savings. At age 60, you can start collecting Canada Pension Plan (CPP). Once you are 65, you can start collecting Old Age Security (OAS), and possibly Guaranteed Income Supplement (GIS). There are many other federal, provincial and municipal benefits that are available to seniors which depend on your income level. See our Government Benefits, Programs and Services page.
If you still have to pay mortgage payments after you retire, you may have problems because the mortgage payment will be a large percentage of your monthly income.
If you do not own a home when you retire, a large percentage of your monthly income will be used to pay rent, which may leave very little for other living expenses.
If, instead of buying a home, you invested in RRSPs, once you retire you will have to withdraw money from your RRSPs to pay your rent and other living expenses. This money will be taxable income. Your OAS may be clawed back, and you may not be eligible for GIS and many other government benefits. You would be better off to own a home rather than the RRSPs, because the government benefits are based on income, not on assets owned.
Real estate values normally increase over the long term, and this increase is tax-free for your principal residence (see principal residence exemption), as long as the reason for purchasing the property is NOT in order to earn a gain on the sale of the property. Keep in mind that land grows in value more than the building, so it is best to buy the largest parcel of land you can afford, in a location that you think will appreciate in value. The Federal 2022 Budget included a property-flipping provision to fully tax as business income the profit from the sale of residential property that was owned for less than 12 months, with some exclusions.
Other Home Ownership Costs
Determine what you can comfortably afford for a mortgage payment, and this will determine how much you can spend on a home. See our loan calculator to determine what your mortgage payments will be. Don't forget to factor in other costs of owning a home, such as strata fees, maintenance costs, house insurance (save money by having a high deductible), property taxes, and heat and utility costs.
There are other costs to buying a home besides the purchase price, including inspection fees, appraisals, moving costs, to name a few. See the Financial Consumer Agency of Canada article on Buying a Home.
When choosing a type of mortgage, keep in mind that historically, open mortgages with a floating rate based on prime have been the cheapest mortgages to have. The rates are lower than fixed rate closed mortgages, and you can make extra payments whenever you can afford them.
Get a Home Inspection
Be sure you know the condition of the home you are planning to purchase. A professional home inspection is advisable.
Home Buyer's Plan - borrowing from your RRSP - if you have been building up your RRSPs, you should consider taking advantage of this.
Federal and Provincial Programs for Home Buyers / Home Owners
GST/HST Housing Rebate - if you build or purchase a new (not just new to you) home or substantially renovate an existing home, you may qualify for a rebate.
Canada Mortgage and Housing Corporation (CMHC) Resources
Renting or buying. Which option is right for you?
Buy a home, and pay it off before your children enter university.
Nobody plans to fail - they just fail to plan!
Your financial plan should include the following steps:
Revised: February 12, 2023
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