Tag Archives: Guaranteed Investment Certificates

How to Get a Down Payment For a Home in Canada

You’d like to become a homeowner one day soon, but similar to a lot of Canadians the only thing stopping you is the down payment. When taking out a mortgage, the lender will require that you make a down payment of at least five percent. This provides the lender with some reassurance that you have some skin in the game.

Coming up with the down payment is perhaps the most challenging part of homeownership. Saving a down payment can be especially challenging if your cost of living is already high. The good news is that there are various ways you can come up with your down payment. Let’s take a look at the most common ways right now.

Personal Savings

Personal savings is probably the first way that comes to mind for getting a down payment. Personal savings isn’t just your savings account. It also covers investment accounts, mutual funds, GICs and Tax-Free Savings Accounts (TFSAs). Just make sure your money is available on closing and easily accessible. Your real estate lawyer will ask for the balance of the down payment funds a day or two before closing.

Registered Retirement Savings Plans (RRSPs)

Your Registered Retirement Savings Plan (RRSP) isn’t just to fund your retirement. It can also be used towards the down payment on a home. In order to do that you need to be a first-time homebuyer. Under the Home Buyers’ Plan (HBP), you can withdraw up to $35,000 from your RRSP towards your first home (up to $70,000 if you’re a couple buying together). The best part is that you won’t pay any taxes on the withdrawals (provided the funds are in your RRSP account for at least 90 days). You’ll have to pay back the funds eventually, although you have up to 15 years to do so.

In case you’re wondering, you can’t withdraw from your Saskatchewan Pension Plan (SPP) account for the HBP. However, contributions to the SPP can be considered as repayments to the HBP.

Gifts

It’s becoming a lot more common for first-time homebuyers to receive a part of their down payment as a gift from family. If you’re fresh out of college or university and you have a sizable student loan, it can take you years to repay it. In fact, student loans are one of the biggest barriers to entry for homeownership among younger folks. That’s where “the bank of mom and dad” can step in.

Many parents may be willing to lend their adult children a helping hand in the form of a gift. Gifting your adult child part or all of their down payment is pretty straightforward. All you’ll need to do is sign a gift letter stating that you’re gifting them the funds rather than it being a loan.

Another way parents can help you out is by gifting their children home equity. If you’re selling the family home to your adult child, you can gift your child home equity. For example, if the home is worth $600,000 and your child has saved up $80,000, you may be willing to gift your child $40,000 in equity, so that they’ll have a 20 percent down payment and can avoid paying mortgage default insurance.

The Bottom Line

These are just a few ideas for ways to come up with your down payment. You can use one of them or all of them. It’s all about figuring out which options makes the most sense for you and putting it into action.

 About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

Why people aren’t saving – an interview with Doug Hoyes

As co-founder of Hoyes and Michalos, a debt relief firm, and a commentator on personal finance, Doug Hoyes has seen it all when it comes to debt.

And he has a straightforward view on why Canadians aren’t saving much for retirement, telling Save with SPP that these days, “people don’t save for anything.”

The savings rate, he notes, was as high as 15 per cent in 1980 and has plunged to “less than one per cent” today. In other words, people are saving less than a penny of every dollar they earn.

“People don’t save anything; it’s just not a thing we do anymore,” he explains. “I think the cost of living is high and job security is low.” The old “job for life” days are long gone, and people now expect to have multiple jobs through their working career, he explains.

“You are seeing sporadic employment, contract work – it is hard for people to put down roots and save. And house prices are rising sharply, and everything costs more. We’re not able to save, and we are seeing more people using debt to make ends meet,” he says.

Those who do try to save tend to be punished for their efforts – savings account and GICs pay interest in the low single digits, and if savers look to invest in mutual funds “there are high fees, and they take on risk,” he explains. Since low-interest lines of credit are so prevalent, for many people, debt has replaced savings, a practice that Hoyes says just isn’t sustainable in the long term.

Save with SPP asked how this lack of saving affects retirement plans.

“It’s become uncommon to have a pension plan (a traditional defined benefit plan) at work,” he says, “unless you work for the government. It’s just not a thing newer companies offer.” He says that from an employer’s point of view, “it is a hassle to set them up, and there is a potential for liabilities that need to be funded, and more money needing to be put in.” Sears and Nortel show the potential downside for employees and DB pensioners if the parent company runs into financial trouble, he notes.

So traditional pension plans in the private sector have generally been replaced with things “like a group RRSP, where there is zero risk (for the employer).” Employees are satisfied with a group RRSP because they “know they are not going to be there, at the same employer, for 50 years,” and a group RRSP is portable and easy to transfer, Hoyes explains.

With more and more working people dealing with debt, it’s not surprising to Hoyes that more seniors are retiring with debt, a situation he says can lead to disaster.

“In retirement, your income goes down, and while some of your expenses that were related to work go down, others will go up,” he explains. “Your rent doesn’t go down when you retire, so your cost of living is about the same.”

Retired seniors, living on less and still paying down debt, face other problems, he says. It’s more common for retirees to divert savings to “helping their adult kids.” Examples of this might include a divorced child moving home, or college and university graduates, unable to find work, staying home instead of moving out. So the seniors may use up their savings or borrow to help the children, “as any parent might,” but that drives them into a financial crisis, he explains.

With debt to pay and possibly little to no workplace pension, many seniors are heading back to work. Others, Hoyes notes, are starting to have to file for insolvency.

“Maybe you only have CPP and OAS coming in, and you have a $50,000 debt that you can’t service – you may need to file for bankruptcy and make payments through a trustee,” he explains.

We thank Doug Hoyes for speaking to Save with SPP.

If you don’t have a pension plan at work, consider opening a Saskatchewan Pension Plan account. It’s like setting up a personal pension plan. The money you set aside is invested for you at a low fee, and when you are ready to collect it, it’s available as a lifetime pension with several survivor benefit options.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Group vs Individual RESPs: What’s the difference ?

The “holy trinity” of tax-assisted savings plans available to Canadians are TFSAs, RRSPs and RESPs. RESPs (Registered Educational Savings Plans) are primarily designed to help families to save for post-secondary education.

Each year, on every dollar up to $2,500 (to a life time maximum of $50,000) that you contributed to an RESP for a child’s education after high school, a basic amount of the Canada Education Savings Grant of 20% may be provided. Depending on the child’s family income, he/she could also qualify for an additional amount of CESG on the first $500 deposited, which means $100 more if the 2017 net family income was $45,916 or less and up to $50 if the 2017 net family income was between $45,916 and $91,831.

In total, the CESG could add up to $600 on $2,500 saved in a year. However, there is a lifetime CESG limit of $7,200. This includes both the basic and additional CESG. Lower income families may also be eligible for the Canada Learning Bond (CLB) that could amount to an additional $2,000 over the life of the plan.

Contributions to RESPs are not tax deductible, but the money in the account accumulates tax-free. Contributions can be withdrawn without tax consequences and when your child enrolls in a university or college program, educational assistance payments made up of the investment earnings and government grant money in the RESP are taxable in the hands of the student, generally at a very low rate.

When our children were young, we purchased Group RESPs for them and their grandparents also purchased additional units. I was so impressed with the program that I even took a year before transitioning from family law to pension law and sold RESPs.

Each child collected about $8,000 from the plan over four years of university, which helped them to graduate debt free. Fortunately, both my daughter and my son took four straight years of university education so there was no problem collecting the maximum amounts available to them minus administrative fees.

However, I’ve come to realize the potential downside of Group RESPs so we started contributing $200/month to a self-administered plan with CIBC Investor’s Edge for our granddaughter soon after she was born. She is now 5 ½ and as I write this, there is already $22,000 in the account.

Our decision to self-administer Daphne’s RESP was influenced in part by what I learned from other personal finance bloggers about the potential downside of group plans.

Robb Engen notes that group plans tend to have strict contribution and withdrawal schedules, meaning that if your plans change – a big possibility over 18 plus years – you could forfeit your enrollment fee or affect how much money your child can withdraw when he/she needs it for school.

With a Group RESP, contributions, government grants and investment earning for children the same age as yours are pooled and the amount minus fees is divided among the total number of students who are in school that year. Typically the pool is invested in very low risk GICs and bonds.

In contrast, there are no fees in our self-administered plan other than $6.95 when we make a trade. The funds are invested in a balanced portfolio of three low fee ETFs. We can easily monitor online how the portfolio is growing and as Daphne gets closer to university age we can shift to a more cautious approach.

Macleans recently reported that the total annual average cost of post-secondary education in Canada for a student living off-campus at a Canadian university is $19,498.75 and it will be much higher by the time your child or grandchild is ready to go off to college. So learn as much as you can about RESPs, get your child a social insurance number, set up a program and start saving.

However, as Engen suggests before you choose a group or individual RESP provider make sure you read the fine print and ask about:

  • Fees for opening an RESP;
  • Fees for withdrawing money from a RESP;
  • Fees for managing the RESP;
  • Fees for services and commissions;
  • What happens if you can’t make regular payments;
  • What happens if your child doesn’t continue his or her education; and
  • If you have to close the account early, do you have to pay fees and penalties; do you get back the money you contributed; do you lose interest and can you transfer the money to another RESP or different account type.

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Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Dec 18: Best from the blogosphere

It seems impossible that is our last Best from the Blogosphere for the year. The next one is slated for January 8, 2018! I wish all savewithspp.com readers a very happy, healthy holiday season and a new year full of promise and exciting adventures.

If you are starting to think about tax season already, you will really appreciate Janine Rogan’s Professional CRA Hacks. With only 36% of calls actually answered it’s no wonder Canadians are frustrated with the tax system. Furthermore, up to 30% of the time the tax information you receive from an agent may be incorrect, which is as concerning for taxpayers as it is for professionals. A few of her hints are:

  • Hit redial 10x in a row.
  • Call the French line but ask for help in English.
  • Ask for your agent’s direct number and agent ID.

On another income tax-related matter, Andy Blatchford reports in The Toronto Star that during the election campaign, the Liberals promised to expand the Home Buyers’ Plan to allow those affected by major life events — death of a spouse, divorce or taking in an elderly relative — to borrow a down payment from their RRSPs without incurring a penalty.

However, a June briefing note for Finance Minister Bill Morneau ahead of his meeting with the Canadian Real Estate Association lays out the government’s concerns that low interest rates and rising home prices have encouraged many Canadians to amass high levels of debt just so they can enter the real-estate market. “Policies to further boost home ownership by stimulating demand would also exert more pressure on house prices,” says the memo,

Firecracker writes about The Five Stages of Early Retirement on Millenial Revolution. According to the self-styled youngest retiree in Canada (age 31), these stages are:

  • Stage 1: The Count Down (1-2 years before early retirement)
  • Stage 2: Honeymoon (0 – 6 months after retirement)
  • Stage 3: Identity Crisis (7 months – 1.5 years after retirement)
  • Stage 4: The New You (1-2 years after retirement)
  • Stage 5: Smooth Sailing (2+ years after retirement)

The Globe and Mail’s Rob Carrick considers the new retirement era and questions How many years past 65 will you work? Carrick says, “Retiring later is bound to be seen as negative, but it’s actually quite unremarkable unless you have a physically demanding job or hate your work. Previous generations may have retired at 65 and lived an extra 10 or 15 years. Retire at 70 today and you might look forward to another 15 or 20 years.”   

And finally, Tom Drake at maplemoney goes back to basics and provides a Guide to Guaranteed Investment Certificates. GICs are a form of investment where you agree to lend money to a bank for a set amount of time. The bank agrees to pay you a certain percentage of interest to borrow this money. You are guaranteed a return as long as you keep your money in the bank for a specified period. Terms on GICs generally run from as little as 90 days to as much as 10 years. “It’s important to weigh the pros and cons of GICs. While you probably don’t want to  build an entire portfolio of GICs (especially if you are trying to build a nest egg), they do have their place in a diversified portfolio,” Drake says.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Feb 9: Best from the blogosphere

By Sheryl Smolkin

Rufus at home – photo by Charles Troster

Well it actually reached +1 degree yesterday and I had a “spring” in my step. However its back to -15 plus who knows what wind chill, so I’ve had to downsize my expectations and put on another layer. Even in his new sweater, our cockapoo Rufus says it’s too #’%!@ cold to stay out for long.

By the way, if you’ve never watched the Rick Mercer clip RMR: Seven Day Forecast – YouTube, it’s a “must see” that will warm up your day.

I’ve just discovered Patricia Gass’s blog Let’s talk About Money. If you are close to retirement or already there, you will enjoy her Reflections From The Early Days Of Spending In Retirement, Part 1 and Reflections From The Early Days Of Spending In Retirement, Part 2. She says running out of money in retirement is NOT an option, especially for the “conservative accountant” in her.

On a similar theme, Kira Vermond from the Globe and Mail writes about Personal financial rules that help stop you from spending too much money. Many of us play simple mind tricks on ourselves and create rules to save money, whether at the checkout counter or in our bank account. How about the Costco customer who decides she will forgo a push cart while shopping there so she’s not tempted to overspend? Her rule: If she can’t lift it, she won’t buy it.

Don’t Buy A Pre-Sale Condo. Ever. says Nelson Smith on Financial Uproar. His blog was triggered by story in the Toronto Star this week about local home buyers who put a $40,000 deposit on a condo in 2011 and four years later got their deposit back, but no condo because the developer decided to convert it to a rental building.

Mr. CBB on Canadian Budget Binder writes about a Free Trial Offer that Cost a Woman $232 in Credit Card Charges. It seems that she paid $12.00 U.S. for a couple of bottles of diet pills to help get off her post-baby weight. However, she didn’t read the fine print and she was charged $116 twice on her credit card which pushed it over her $500 credit limit. So don’t believe everything you read unless you read everything, and remember rarely, if ever, is there a free lunch.

And if you are still wondering How the Bank of Canada rate cut will affect consumers, wonder no more. Brighter Life editor Brenda Spiering says its bad news for interest-based savings accounts and GICs. But it’s good news for variable rate mortgages and lines of credit.

As for vacations, with the loonie in the cellar and low fuel prices, Rob Carrick at the Globe and Mail says this is the year for a big road trip in See Canada and save money. I think he is onto something. Beautiful Saskatchewan, here I come….

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Big Cajun Man shares RDSP, RESP expertise

By Sheryl Smolkin

Alan Whitton and his son Rhys
Alan Whitton and his son Rhys

 

podcast picture
Click here to listen

Hi,

As part of the savewithspp.com continuing series of podcast interviews with personal finance bloggers, today I’m talking to the “Big Cajun Man,” author of the Canadian Personal Finance Blog.

In real life, he is actually, Alan Whitton, a mild-mannered government civil servant and father of four, living in Ottawa. Alan has been blogging about finance and consumerism for about ten years, focusing on real life experiences.

As a result, he has written extensively about Registered Disability Savings Plans and parenting a disabled child.

Welcome, Alan.

My pleasure Sheryl.

Q: First of all Alan, tell our listeners where your alter ego name, “Big Cajun Man,” came from.
A:  Well, I was playing golf with friends and was wearing a straw hat and someone yelled at me, “What do you think you are, some kind of big stinking Cajun man?” and the guys I was playing with have called me that ever since.

Q: Why did you start blogging?
A: Well, I started initially just on BlogSpot as sort of an open letter to my mother because at the time, my wife was pregnant with our fourth child, who was a bit of a surprise. Then I realized I could write about other things and I was always interested in money so I figured I’d just start blogging about it.

Q: How frequently do you post?
A: I try to write four or five posts in a week. The Friday post is usually a ‘best of’ what I’ve seen during the week.

Q: How long are the blogs and how complex are they? Do they vary?
A: Oh, it’s usually somewhere between four and eight paragraphs. What shows up, or what I read about or something that happens in my life is usually the catalyst for the more interesting ones.

Q: Tell me about some of the topics you write about.
A: Well, family and money and how families work with money, a little bit on investing, a lot more on disability and how families can deal financially with kids with disabilities or loved ones with disabilities. And that really, again, arose because when Rhys was diagnosed on the autism spectrum, I had to learn about all this so I figured I’d write about it too.

Q: And, how old is Rhys now?
A: He is 9. I have three beautiful daughters who are 24, 22 and 20, and my son who has just turned 9. It’s a multi-generational family. That’s why I end up writing about things like university costs and parenting a 9-year old.

Q: There are probably over a dozen personal finance bloggers in Canada. What’s different about your blog. Why do you think it’s a must read?
A: I don’t know. I mean, my point of view as a father of a multi-generational family is interesting. I always have had a different perspective on things. I leave a lot of the specific investing ideas to some of the more qualified chaps like Michael James and Rob Carrick. I mostly just talk about John Public’s point of view of things.

Q: How many hits do you typically get for your blogs?
A: Between 8,000 and 12,000 a month. It started off very slowly and I think with the backlog of over 2,500 posts there’s a lot of people who just search and end up finding me accidentally.

Q: What are some of the more popular blogs you’ve posted?
A: Well, anything under my RDSP and RESP menus are popular, like how to apply for your child’s disability tax benefits. And on the RDSP side of things all the fights I’ve had with TD about putting money in and taking money out. Also, surprisingly, I wrote one simple blog that just said “I am a civil servant,” and let me tell you, that one caused no end of excitement.

Q: What is the essence of that particular blog?
A: I was trying to blow up some of the very negative views people have about civil servants. I mean, I worked in the private sector for over 20 years. I‘ve been a civil servant for 4 years.

Q. Tell me some of the key features of Registered Disability Savings Plans and what parents of disabled children need to know about them.
A: Well, just that right now they’re sort of the poor stepson at most financial institutions. I mean they’re not very flexible. Typically, at worst, they’re really just savings accounts. You can buy GICs or the bank’s mutual funds, which usually have very high management fees.

From what I can tell so far, TD Waterhouse is the only trading partner or trading house that has an RDSP where you can actually buy whatever you want like ETFs. But even the TD plan is not very well set up. It’s pretty cumbersome to put money into.

Q: What’s cumbersome about it?
A: Well, I can’t set up a weekly automatic withdrawal. I have to put money aside into another TD trading account. Then I have to phone up every once in awhile and transfer the money from the trading account into the RDSP. And then I have to call back after the money’s cleared to say, “And now I want to buy these ETF’s or index funds.”

Q: Why is that?
A: I don’t know. I’ve asked TD that a whole bunch of times. It’s just the way the system works. I’ve poked at them as best I can. I’ve asked a few other people to poke at them, but I haven’t really received a satisfactory answer.

Q: Are there legislative rules about how you can invest RDSPs?
A: Not, necessarily. It’s just the banks are putting that kind of limit on things because it’s not a big money maker for them. They’re not going to make a fortune on amounts people deposit into RDSPs.  Whereas with RESPs, there are more people with kids going to university.

Q: What are the contribution limits on RDSPs?
A: The overall lifetime limit for a particular beneficiary is $200,000. Contributions are permitted until the end of the year in which the beneficiary turns 59. Up to a certain amount every year, depending on how much money you make, will be matched by the government.

Based on parental income, an RDSP can get a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. A grant can be paid into an RDSP on contributions made to the beneficiary’s RDSP until December 31 of the year the beneficiary turns 49.

Q: Do you have a favorite personal finance blogger that you read religiously?
A: I’ve got a couple. I like reading Michael James “On Money”, but he’s a friend of mine. I really like the Canadian Capitalist, but he’s sort of taken a hiatus. “Boomer & Echo” and the “Canadian Couch Potato” are quite good and so is “My Own Advisor.” I’ve met most of these guys at various conferences. I also read Squawkfox and have had extensive correspondence with her on Twitter.

Q: What, if any, money making opportunities or spin-offs have there been as a result of your blogging career?
A: Well, I don’t do this for the money which is obvious given how little I make at it. This is more of a cathartic thing for me.

Q: If you had only one piece of advice to readers or listeners about getting their finances in order, what would it be?
A: Get out of debt. Debt is a bad thing. There’s no such thing as good debt. It’s all bad. Don’t fool yourself into thinking there’s livable debt like a mortgage or maybe paying for your university. Somehow carrying debt has been normalized in the last 30 years or so but it’s still really not ok.

Thank you very much, Alan. It was a pleasure to talk to you.

Thanks for the opportunity Sheryl.

This is an edited transcript you can listen to by clicking on the link above. You can find the Canadian Personal Finance Blog here.