RRSP vs. TFSA: Which is the Best Investment Tool for First-Time Home Buyers?


So you've decided you're ready to buy a home. Now the real work begins—saving enough money for a down payment.


“It's absolutely critical the down payment is a good size on a first home—somewhere in the range of 10 to 20%,” says Lesley-Anne Scorgie, a personal finance author. “The rationale simply being that the habit of saving is the same habit you'll need for actually owning a home—keeping up with the payments and preparing yourself and your bank account.”


There are many online mortgage calculators available to help you determine how much home you can afford. REALTOR.ca's mortgage affordability calculator can help guide you through this entire process. It's important to save a healthy down payment to avoid, what could be, steep mortgage insurance fees.

To help, the federal government has set up a number of tools you can use to build up sizeable savings, including Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). Each offer benefits for first-time home buyers to help them achieve their home purchasing goals.

a woman with her baby on her lap while working on a laptop

“For most first-time home buyers who earn an income of over $60,000, the RRSP is a very good choice, as they're building up their down payment while they receive the benefits of a reduced tax bill,” said Scorgie. “That money can then be put towards further beefing up their RRSP, with the ultimate goal of taking out the money for buying a home.”


First-time home buyers can use their RRSPs towards their down payment, which again, isn't taxed. Recently, the federal government's 2019 budget increased the Home Buyers' Plan (HBP) withdrawal limit from $25,000 to $35,000. The repayment period starts two years after the funds are withdrawn, and one-fifteenth of the withdrawn funds need to be repaid each calendar year (over a max of 15 years) or it will be taxed as income.


“When you pool that with a spouse or a partner, they can each take out that amount in their RRSPs. When you have 15 years, that's a nice length of time to pay it back,” Scorgie said.


There is one drawback: When money is withdrawn from an RRSP, it's not invested in any financial markets but rather in the real estate market. Home buyers are trading off one market exposure for another. In real estate, your investment is exposed to the fluctuations of the local market. Meanwhile, money invested for the long-term in stocks, bonds or mutual funds is exposed to the changes in the financial market.


“If you feel you'd be better off making more money in the stock and bond market, keep your money there. Consider instead taking the money you need for the down payment out of a TFSA,” says Scorgie, adding it can also be a better option when household income is lower.

Young woman moving to a new apartment

For example, if you've been over 18 since 2009, you would have TFSA contribution limit of $63,500 in total; $5,000 for each year from 2009 to 2012; $5,500 for each of 2013 and 2014; $10,000 for 2015; $5,500 for each of 2016, 2017 and 2018; and $6,000 for 2019. (TFSAs were not available before 2009).


“If you invest your money in a TFSA, there's no penalty for using that money for a down payment. You can also re-contribute all that money back because you get your limit back. You can keep saving. There aren't many drawbacks,” Scorgie said.


In the end, it really comes down to a personal preference between an RRSP and a TFSA. According to Scorgie, you could also use both to improve your savings power.


“In expensive markets, it's very common to use both,” explains Scorgie. I would say 90% of first-time buyers in expensive markets have to use both because of the limit of the RRSP.”


Saving for a down payment is hard work, no matter how you choose to do it. Be sure to take advantage of all the savings tools at your disposal and, before long, your dream of homeownership could become a reality.


REALTOR® can help recommend a mortgage broker, online tools, and make sure you're getting the most bang for your buck when negotiating the sale of your first home.


The article above is for information purposes and is not financial or legal advice or a substitute for financial or legal counsel.


By 

Mario Toneguzzi

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Best Places to Live: Canada Liveability Report
 
 
 
Best Places To Live Canada Liveability Report

Canadians love where they live; RE/MAX Report explores some of the best places to live in Canada

  • 89 per cent of Canadians would recommend their neighbourhoods to others
  • Major Canadian cities are a beacon for liveability


Canadians genuinely celebrate the liveability factors — the qualities that give each homeowner the true satisfaction of his/her home within the context of a neighbourhood — when it comes to choosing a property to buy and live in. In fact, 89 per cent of Canadians would recommend their neighbourhood to others according to a recent RE/MAX survey conducted by Leger.

The latest RE/MAX report examined a variety of quality of life factors and how they impact Canadians’ home-buying decisions.

 “Housing is often a contentious topic in Canada, with affordability and inventory being persistent problems from coast to coast,” says Christopher Alexander, Executive Vice President, RE/MAX of Ontario-Atlantic Canada. “However, when buyers are looking for a home, the search begins at the neighbourhood level. And the good news is that Canadians have lots of choice when it comes to ‘liveable’ cities and neighbourhoods.” 

Six-in-10 Canadians put easy access to shopping, dining and green spaces at the top of their liveability criteria. Proximity to public transit (36 per cent), work (30 per cent) and to preferred schools (18 per cent), as well as cultural and community centres (18 per cent) fall out of the top five neighbourhood wants and expectations.

The proximity and availability of these liveability factors is so important that Canadians spend more than two-thirds of their time in their own neighbourhood. This rate is higher among Baby Boomers compared to Gen Z, Millennial and Gen X Canadians.

 “While price and value are always top of mind for buyers, there are some aspects about a home that you can’t change,” says Alexander. “These liveability factors are what make your home more than just the place you live. They are at the heart of the Canadian experience, especially when you consider the survey results.” 

RE/MAX brokers were also asked to tap into their neighbourhood expertise and rate their city on each liveability factor. 

Best Places To Live Liveability Report chart

In the west, Calgary ranked high in seven out of 11 categories, including offering good access to employment opportunities, population growth, housing supply, housing affordability and easy access to bike lanes and/or walking paths. Confederation and Nose Hill Park are two of the most popular parks in the city and the Rotary Mattamy Greenway is the cycling equivalent to the ring road. Inglewood, Hillhurst and Charleswood rank as the top three all-around liveable neighbourhoods. Edmonton also ranked high in access to employment opportunities, number of top rated/preferred schools and easy access to bike lanes and/or walking paths.

 “Despite reports of slowing economic conditions and a relatively flat real estate market in Alberta, Calgary and Edmonton shine as beacons of liveability,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “This is a promising sign for any buyers considering a purchase in either city as they continue to develop as liveable cities in their own right.” 

Toronto ranked medium for access to green spaces and parks but high for availability of big and small retail stores, population growth and access to healthcare facilities. The neighbourhoods that rated highest for access to green space and parks – Rosedale, Leaside and The Beaches – are also the most expensive. Conversely, Toronto’s most affordable neighbourhoods include parts of Scarborough and East York.

Vancouver ranked medium for availability of big and small retail stores, population growth and housing supply. However, it ranked high in availability of public transit, where the Skytrain and bus system prove exceptional; and walkability, especially in Yaletown. Main, West End and Kerrisdale are the top three all-around liveable neighbourhoods in Vancouver while Mount Pleasant, Downtown and Renfrew-Collingwood are the most affordable.

Other regions include Ottawa, where The Glebe neighbourhood is the best for walkability and public transit; Halifax, where Clayton park boasted high inventory; Hamilton, where Beasley was best for affordability; Winnipeg, where Transcona is a hidden gem neighbourhood; Saskatoon, where Nutana is the all-around best neighbourhood for liveability; and Nanaimo, where Central Nanaimo is best for affordability.

 “Liveability encompasses the many intangibles when buying and selling a home than an algorithm will never sufficiently capture. You need word of mouth and the on-the-ground expertise of a REALTOR® who has genuine locale knowledge like few others,” adds Ash. 

Key findings from the 2019 RE/MAX Liveability Report Survey

Best Place To Live Liveability Report infographic

REGIONAL SUMMARIES

Best places to live Halifax

Halifax

Downtown Dartmouth, North End Halifax and Clayton Park rank as the top three neighbourhoods in Halifax for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Downtown Dartmouth ranks as the top hidden gem neighbourhood for its unique amenities like access to ferry transportation and a multisport stadium.

Best places to live Ottawa

Ottawa

Mooney’s Bay, Downtown Ottawa and The Glebe rank as the top three neighbourhoods in Ottawa for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Crystal Beach ranks as the top hidden gem neighbourhood, while Orleans, Barrhaven and Blackburn Hamlet rank as the top three neighbourhoods for affordability and good supply of housing inventory.

Best places to live Toronto

Toronto

In Toronto, the downtown core (south of Bloor Street) reigns supreme for proximity to public transit and walkability. When it comes to access to green spaces, Midtown has a variety of options to choose from, specifically North Riverdale and Leaside. For walkability, Davisville, Yonge and Eglington and Leslieville top the list. The Western Region of Scarborough is the hidden gem in the city offering great liveability and affordable housing.

Best places to live Brampton

Brampton

The neighbourhoods of Heartlake, Sandringham and Fletchers Meadow rank as the top three for access to green spaces, walkability, access to retail shops/restaurants as well as public transit. Of the three, Sandringham also has a high housing supply. Vales of Castlemore ranks as a hidden gem neighbourhood due to housing affordability of its larger size property supply.

best places to live in Mississauga

Mississauga

Port Credit, Streetsville and Cooksville rank as the top three neighbourhoods in Mississauga for access to green spaces and parks, walkability, access to retail stores and restaurants, and public transit. Mineola, Lakeview ranks as the top hidden gem neighbourhood. Lakeview also ranks high in affordability. When it comes to affordability and housing supply, the City Centre, Erin Mills and Cooksville top the list.

Best Places to Live Hamilton

Hamilton

Meadowlands, Beasley and Sydenham rank as the top three neighbourhoods in Hamilton for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around by car and public transit. Sydenham ranks as the top hidden gem neighbourhood in Hamilton for its supply of both high rises and detached homes, attracting both retirees and growing families.

Best places to live Kitchener Waterloo

Kitchener-Waterloo

Doon, Stanley Park and Beachwood rank as the top three neighbourhoods in Kitchener-Waterloo for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. The downtown areas for both Kitchener and Waterloo boast affordable options and good supply of inventory.

Best places to live London

London

London’s neighbourhoods of Byron, Lambeth and Old South London rank as the top three for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Lambeth ranks as the top hidden gem neighbourhood, while Carling Heights, White Oaks and Southcrest rank as the top three neighbourhoods for affordability and good supply of housing inventory.

Winnipeg

Winnipeg’s neighbourhoods of Bridgwater Lakes, River Heights and West Kildonan rank as the top three for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Transcona ranks as the top hidden gem neighbourhood, while River Park South, Sargent Park and Saint James rank as the top three neighbourhoods for affordability and good supply of housing inventory.

Saskatoon

Nutana, Stonebridge and City Park rank as the top three neighbourhoods in Saskatoon for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Caswell ranks as the top hidden gem neighbourhood, while it, Riversdale and Exhibition rank as the top three neighbourhoods for affordability and good supply of housing inventory.

Edmonton

Old Strathcona, Oliver and Westmount rank as the top three neighbourhoods in Edmonton for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Summerside ranks as the top hidden gem neighbourhood, while Oliver, Clareview and Hudson rank as the top three neighbourhoods for affordability and good supply of housing inventory.

Calgary

Calgary’s Inglewood, Hillhurst and Charleswood areas rank as the top three all-around liveable neighbourhoods for access to green spaces and parks, walkability, access to retail stores and restaurants and ease of getting around/public transit. North Haven Upper, Renfrew, Chinook and Meadowgate Park rank as the top hidden gem neighbourhoods to housing supply, affordability and liveability factors.


vancouver

Vancouver

Main, West End and Kerrisdale rank as the top three neighbourhoods in Vancouver for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Main ranks as the top hidden gem neighbourhood, while Mount Pleasant, Downtown and Renfrew-Collingwood rank as the top three neighbourhoods for affordability and good supply of housing inventory.


Victoria

Victoria Core, Saanich and Westshore rank as the top three neighbourhoods in Victoria for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Estevaan Village in Oak Bay ranks as the top hidden gem neighbourhood, while Langford, Colwood and Saanich are the top neighbourhoods for affordability and good supply of housing inventory.


Nanaimo

Lower Lantzville, North Nanaimo and Departure Bay rank as the top three neighbourhoods for access to green spaces and parks, walkability, retail and restaurants and the ease of getting around/public transit. Lower Lantzville ranks as the top hidden gem neighbourhood, while Central Nanaimo, Uplands and Diver Lake rank as the top three neighbourhoods for affordability and good supply of housing inventory.


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