Posted by: Daryl & Wendy Ashby | April 2, 2010

How Do You Save for a Down Payment?

This is possibly the toughest part in purchasing for the first time. But remember, a down payment on a home is an investment in your future. In fact, it may be one of the biggest investments you’ll ever make.

So what is the best way to save?

Three tips to save a down payment

1. Make a point of keeping the money that you are setting aside for a down payment, in an account apart from your other savings. That way, you’ll be less likely to spend it. It is an inherent fault of mankind, to rob Peter to pay Paul.

2. Go out of your way to find a means by which you can make your money safely grow. The last thing you need after being so diligent, is to wake up a month before you plan to purchase your home and discover you have lost part or all of the money due to a downwards swing in the stock market.

3. You might want to consider saving for a down payment in a Registered Retirement Savings Plan (RRSP). Under the government’s Home Buyer’s Plan, you can take up to $20,000 from your RRSP for a down payment on a home.You won’t pay any tax on the money as long as you pay it back over the next 15 years.

What are some safe places to invest while I save for a down payment?

• High-interest savings account

Every time you get paid, put some money into this account. When you’re ready to buy, you can easily get your savings out. For some people, that’s not a plus, however, because it’s a little too easy to take the money out and spend it on something else.

• Guaranteed Investment Certificate (GIC)

As your savings grow, you may want to buy GICs. If you think you’ll be tempted to spend some of your savings, you can lock your money in with a GIC so that you can’t easily get at it.

• Canada Savings Bond (CSB)

The federal government offers CSBs to investors at certain times each year. They pay minimum interest but you can also invest as little as $100. One type of CSB is cashable any time. Certain provinces also offer provincial savings bonds.

• Money market fund

A money market fund is a mutual fund that invests in safe, short-term products. The fund is run by a professional investment manager who invests the money for you. You can get your money quickly and easily, usually within 24 hours. However, like other mutual funds, there are fees to pay for having your money in the fund. There may also be fees for taking your money out.

Remember: It takes time to save up a down payment

You can speed up the process if you invest your money so it will grow. Just don’t take more risk than you are comfortable with.

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