Saving money as a new homeowner

It’s been two years since my wife and I bought our condo in North York, Toronto, and since then, there have been quite a few changes in the real estate market. I have no idea what’s going on with housing in Canada, nor can I predict where prices will be at in the future. But, there are a few things my wife and I did — and you can, too — to ensure you save money as a new or potential homeowner.

Park your money in the right place: Truth be told, we had no idea when we were going to buy a home. We just knew that having a big down payment would only benefit us since that meant we would have a smaller mortgage. The goal was also to have at least 20 per cent down to avoid CMHC insurance fees. To keep us on track, we set up automatic savings that went right into a high-interest savings account, which we designated for our home purchase.

Using the Home Buyers Plan (HBP) was also something we considered, since we could each withdraw up to $25,000 from our RRSPS as first-time homebuyers, but we didn’t love the idea of draining our retirement funds. The HBP can be a useful tool when saving for a down payment, you just need to keep in mind that any funds you withdraw need to be paid back.

If you happen to be sitting on some cash, it may make sense to contribute it to your RRSP so you get a tax refund that could then be added to your down payment. To qualify for the HBP, your funds must be in your RRSP for at least 90 days. Use a mortgage broker: Before we even started looking for homes, I looked at mortgage rates to get an idea of how much house we could afford and what our monthly payments would be like. I checked out Ratehub.ca, and their posted rates were easily a full percentage lower than the major banks. This wasn’t some scam; mortgage rate comparison sites make it easy to see what rates are being offered from a variety of lenders.

When we were ready to buy, we spoke to a mortgage broker who found the best rate possible for us (2.35 per cent for five years fixed at the time). He was able to get us such a good rate because he did not work for a single lender.

Increase your mortgage payments: The best thing we did was set our mortgage payments to advanced bi-weekly immediately. By doing this, we were making one extra payment a year (13 instead of 12), which instantly shaved about four years off the amortization of our mortgage.

We’ve also taken advantage of prepayment options by using any “found” money such as raises, gifts, and tax refunds. Any additional payments you make toward your mortgage go 100 per cent toward the principal. Just keep in mind that every mortgage contract has set provisions about how much you can repay.

Some mortgages also allow you to top up every payment. In our case, we’re allowed to increase each payment by 15 per cent. If we keep it up for the term of the mortgage, we could shave two to three more years off the mortgage.

Be smart about furnishing your

home: Although my wife and I had furniture, we decided we would purchase some new pieces. Basically, we wanted to upgrade our stuff from Ikea.

We looked for things such as a TV stand, shelf, side tables, dining table, and a desk with a budget of about $4,000. We offset our costs by selling our old stuff on Kijiji, where furniture is one of the top most-exchanged categories. We ended up getting about $1,200.

Use quality contractors: If you plan on doing some home renovations, hire a quality contractor so the work gets done right the first time.