Down re: payments? - Metro US

Down re: payments?

Saving for a down payment in a chequing account or hiding cash in a safety deposit box are counterproductive; they earn little to no interest and are too easy to dip into. The best approach is to start saving well in advance using savings vehicles that earn interest, but don’t put your funds at risk.

Start thinking about how much you’ll need for a down payment. Experts recommend having at least 20 per cent of the home’s value. Financial institutions will accept less than 20 per cent down payment but, you’ll pay a premium for an insured mortgage through Canada Mortgage and Housing Corporation (CMHC). Check out the insurance rates at cmhc-schl.gc.ca.

Let’s say you plan to buy a $200,000 home in three years and you’d like to save 20 per cent down payment, or $40,000. There are two savings approaches: first; invest regular monthly amounts by having money automatically transferred from your bank account on payday; or second; invest lump sums each year.

Saving monthly works well when you’ve got a fixed budget. In this example, you’d need to tuck away $1,111 per month for 36 months. Saving in lump sum contributions works well when you receive annual bonuses, tax refunds, etc.

Unfortunately there’s no easy way to save for a down payment. It takes hard work, determination and frugal living. But, the act of saving helps you form healthy financial habits which you’ll need once you’re a home owner.

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