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Saving for a down payment? Here are three accounts that can help

When you want to become a homeowner, the idea of a downpayment can be daunting. It might feel like a lot of money to pay upfront, but using the right accounts when saving for your downpayment can make your money work for you.

While there are other benefits available to help you afford your first home, including the $3,000 cash back incentive being offered by Prospera Credit Union when you get a mortgage through them, one of the most effective ways to save money towards a downpayment is by taking advantage of the non-taxable savings accounts.

<who>Photo credit: Prospera Credit Union</who>

Are you ready to start saving up for your downpayment? Read below to learn more about how you can utilize three savings accounts to put away money for your future abode.

RRSPs

A considerable amount of first-time homebuyers use their Registered Retirement Savings Plan (RRSP) savings toward the down payment of their home — and for good reason.

An RRSP is a savings account that you can contribute to for retirement purposes. It is registered with the Canadian federal government and your funds are exempt from being taxed in the year you make the contribution.

Because they are tax-deductible, they can be deducted from your current year's tax return, potentially reducing the total amount of taxes you have to pay.

If you qualify for the Home Buyers’ Plan (HBP), you can withdraw up to $35,000 from the account to use for your home purchase, without being taxed as long as you repay on schedule over the course of 15 years or less.

TFSAs

Tax-Free Savings Accounts (TFSAs) and bank savings are also considerable sources of funds to put towards your home-buying expenses, such as your down payment or closing costs.

There is no tax due when you withdraw from these accounts, so that will give you peace of mind that the amount you take out is the amount you will be able to use.

A TFSA is a registered tax-advantaged savings account that helps you earn money, tax-free, by generating interest, capital gains, and dividends.

You can maintain an assortment of qualified investments in your TFSA including cash, mutual funds, stocks, bonds and GICs.

Learn more about the differences between TFSAs and RRSPs here.

<who>Photo credit: Prospera Credit Union</who>

FHSA

The tax-free first home savings account (FHSA) is an upcoming addition to the investment savings accounts available for Canadians looking to buy their first home. It will be available in 2023 to anyone looking to buy their first home.

This forthcoming account will add another way for aspiring homeowners to make a down payment on their first property. Contributions to an FHSA will be tax-deductible, as will withdrawals, so the money you take out for a downpayment towards your home will also be non-taxable.

Don’t fear the down payment

Using a combination of these three savings accounts will help you save up for the purchase of your first home, and give you confidence that you’re getting the most out of your hard-earned dollars.

If you have any questions about these savings accounts or incorporating saving into your budget, contact Prospera Credit Union to connect with an advisor.



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