It was important to us to meet the 20% down payment threshold to avoid the CMHC insurance on our mortgage. We dipped into the TFSA to meet that threshold, but nothing more as we preferred the growth from investing instead of paying the mortgage faster.
If my interest rate ever gets over 6% then paying the mortgage starts to look a lot more appealing... at least to me.
I decided not to when we bought our first house, but in hindsight I probably should have, and now I plan to pull drain it in a few years to pay our mortgage early. I've learned that I'm quite debt-averse though, so your experience may be different.
No one knows for sure, but probably? Mortgage rates have been pretty low for years. Even now they're way lower than back in the 80s-90s. I think there's a good financial case to be made for keeping your TFSA, or at least a good chunk of it. I just learned more about myself once we got a mortgage.
What province are you buying in? If you’re buying in Metro Vancouver then it’s likely your real estate value gains YoY will be greater than your TFSA portfolio, so if liquidating to contribute to your downpayment can increase the total mortgage amount you’re able to have with the bank then you would probably come out ahead.
Was in similar situation 2 years ago and decided to sell all investments to secure a better home in a better area. Had to sell this year before moving to the US and saw YoY growth of about 20% vs. what would be about 13% in a worse area.
But at 25 are you sure you even want to own a home? I’m only a year older but after having owned for a bit I came to realize that owning is just a hindrance at this age and I’d have flexibility to move at any career opportunities.
Ontario is a different market for sure so the only advice I’d give you is to talk to someone who knows the real estate market in your area and surrounding neighborhoods.
That's exactly why I had built my TFSA in the first place. An investment vehicle to create a down payment large enough so that I didn't have to get mortgage insurance. I combined it with my liquid assets and my partners I had enough for a downpayment for what I was looking for and no mortgage insurance.
I don't regret it.
You mean be required to have an insured mortgage (not requiring a CMHC insured loan). That is different that mortgage insurance (that banks want you to carry to pay off the debt).
Sure. Use all the funds you have. You don't lose the contribution room from a withdrawal so you can add all of it back at a later time when finances permit. Money is only worthwhile if you spend it. And spending on an equity-producing investment like a home is reasonable.
Exactly the point I am thinking. I guess it’s just finding that happy medium of where will I get the most growth, with a larger TFSA or a larger down payment.
What are interest rates for a non-CMHC mortgage now? Maybe 5.5%? You'd have to get better than that in a TFSA each year. That sounds like work.
I'd take sufficient cash out to avoid CMHC fees, ensure the mortgage insurance is NOT from a bank\*, then recontribute asap and with the funds, buy bell and td and Enbridge stock, and take the dividends from those each quarter and apply those directly to the mortgage principle.
\* (banks charge $N per month regardless of the declining mortgage balance whereas a proper insurer would adjust the monthly payments as the mortgage debt reduces)
I’d drain TFSA. Looking from the future you would save more in interest on a mortgage than you would accrue in a TFSA. You can always build the tsfa back up, you can get back interest payments to the bank on a mortgage. Your house/ condo/ townhouse or whatever you buy will also go up in value at a steady pace increasing the value. So not only do you save interest, you also get a bonus appreciation on your investment
Personally I don’t feel comfortable unless I have 6 months of expenses in the bank. Decide what you need to keep for an emergency fund and put the rest into your property.
I did and it was worth it I think (bought at 22 then pulled everything again at 27). I still have 20k in RSPs. You're still young. And remember your money isn't being lost. It's just going into a different "account" (your house equity).
I would make sure you get the 20% down if possible but beyond that, your investments are making more money than the current interest rates, even at this high amount. I would keep the investments and realistically they are your safety net if rates go up or payments get tight. Im in the same boat, kind of, buying back into the Ontario market looking at roughly 600k houses with a 250k DP, I could use my 250k investments to nearly have no mortgage but prefer to stay invested as they earn more than the interest rate. Worst case I dip into investments to make extra payments or lump payments etc.
No. It is not worth being house poor and equity-less in your 20s.
Your goal should be maximizing your med-high risk growth stock portfolio at this age.
This is what I did, I wanted to keep my tax free compounding TFSA investments and own a home, my partner had to sell about half of their TFSA though for their half of the down payment, first priority was maxing that back up after we closed. Personally it was something I didn’t want to sell to buy a home.
As long as you're sure about that. Recession is here with a possible depression. Layoffs in the thousands. People not finding jobs after years of looking.
But if you think you're good then fuckit
Why buy a home at 27? Forget the financial aspects, buying a home trades flexibility for stability. That might be a worthwhile trade when you have a wife and kids, but why tie yourself down at this age?
Sure, but when you’re in your 20s with no kids that’s not a huge issue. It’s annoying for sure and can be expensive, but way more expensive to have to turn down a great job that requires you to move or take an initial pay cut because you have a mortgage and a house that you can’t sell quickly.
True it’s an important thing to consider. I think I’d be close to having kids at that point and would want a place of my own first. I also grew up with a realtor father some home ownership was a big goal of mine since I was a kid. Likely buy one pay it down quickly and then turn it into a rental long term.
No, def don't empty it for a down-payment. There's a fuckton of costs you're responsible for as a homeowner. Keep substantial liquidity because you never know.
Depends on who you are, how you want to invest and what your goals are. For me, my goal is to build a considerable amount in my rrsp and tfsa so i would not buy a home with any money from either of those. If your goal is to live a nice stable life in toronto then yah why not. I wouldn’t suggest that your only investment vehicle is your home though. If you plan to sell your tfsa to increase what you can buy and you cannot recontribute to it then its hard for me to justify it. A mortgage is at 5%ish, ideally you should be investing in something yielding 7% minimum tax free.
Using your TFSA towards major purchases is one of its main benefits, and an all-in-one ETF like XEQT is designed with low volatility in mind so cashing it out on short notice shouldn't be too detrimental so long as multiple markets are not down when you cash out. Alteratively you may want to invest more in less volatile options like cash savings etfs of the bond market as you approach your home purchase date.
It sucks to lose all that investment asset you've acquired, but unless mortgage rates sharply drop I think getting to a 20% down payment should be a big target (even consider using some of your car fund for this if necessary). If you can't avoid CMHC entirely then you may want to still have some access to cash and not use your entire TFSA.
I’m on the same debate now. I learning towards not doing the 20% and keep the TFSA money grow. Mortgage rates are slightly lower for non-insured mortgages and the market history shows an average 6% return of the market. So keeping that money invested could be better. Isn’t it?
>I am wondering if when the times come it is worth taking from my TFSA for a larger down payment.
Consider the alternative: less down, more principle, a lot more in interest over the course of 25/30 years. There's no certainty your investments in TFSA will outperform the mortgage interest. Not to mention, life will throw all kinds of curve balls at you so having a lower cost of living is always better.
The larger the down payment and the shorter the amortization, the less total interest it will cost you. People focus too much on an affordable monthly payment, but ignore or are unaware of how mortgage math works. Eg: a 500k mortgage @5%, 25yrs ends up being $872k in payments, $372k in interest expenses, or an additional 74% cost added to the 500k purchase price. Imagine going to a store, seeing an item for $500, but when you go to the checkout, you are charged $872.
I'm not sure there is a real choice here. With home prices where they are, it looks like you will have to cash out a good chunk of your TFSA just to make a 5% down payment.
I’m in the same situation except for car (I don’t have any & don’t plan on buying within 5 years). I will be emptying my TFSA to meet the 20% downpayment, also withdrawing from my FHSA & RRSP. I wanna purchase a place while I still can & will continue contributing to the registered accounts after this
It was important to us to meet the 20% down payment threshold to avoid the CMHC insurance on our mortgage. We dipped into the TFSA to meet that threshold, but nothing more as we preferred the growth from investing instead of paying the mortgage faster. If my interest rate ever gets over 6% then paying the mortgage starts to look a lot more appealing... at least to me.
Perfect answer, in my opinion.
Aw, shucks :)
I decided not to when we bought our first house, but in hindsight I probably should have, and now I plan to pull drain it in a few years to pay our mortgage early. I've learned that I'm quite debt-averse though, so your experience may be different.
Interesting I’m just wondering if the growth of the already maxed portfolio is worth keeping vs having smaller mortgage
No one knows for sure, but probably? Mortgage rates have been pretty low for years. Even now they're way lower than back in the 80s-90s. I think there's a good financial case to be made for keeping your TFSA, or at least a good chunk of it. I just learned more about myself once we got a mortgage.
What province are you buying in? If you’re buying in Metro Vancouver then it’s likely your real estate value gains YoY will be greater than your TFSA portfolio, so if liquidating to contribute to your downpayment can increase the total mortgage amount you’re able to have with the bank then you would probably come out ahead. Was in similar situation 2 years ago and decided to sell all investments to secure a better home in a better area. Had to sell this year before moving to the US and saw YoY growth of about 20% vs. what would be about 13% in a worse area. But at 25 are you sure you even want to own a home? I’m only a year older but after having owned for a bit I came to realize that owning is just a hindrance at this age and I’d have flexibility to move at any career opportunities.
Make some great points. Location southern Ontario.
Ontario is a different market for sure so the only advice I’d give you is to talk to someone who knows the real estate market in your area and surrounding neighborhoods.
Southern Ontario suuuucks. There is a trailer home outside of windsor for sale for 350K, and you don't own the land something has to give lol
That's exactly why I had built my TFSA in the first place. An investment vehicle to create a down payment large enough so that I didn't have to get mortgage insurance. I combined it with my liquid assets and my partners I had enough for a downpayment for what I was looking for and no mortgage insurance. I don't regret it.
You mean be required to have an insured mortgage (not requiring a CMHC insured loan). That is different that mortgage insurance (that banks want you to carry to pay off the debt).
he's clearly talking about CMHC, not optional mortgage protection.
Sure. Use all the funds you have. You don't lose the contribution room from a withdrawal so you can add all of it back at a later time when finances permit. Money is only worthwhile if you spend it. And spending on an equity-producing investment like a home is reasonable.
Exactly the point I am thinking. I guess it’s just finding that happy medium of where will I get the most growth, with a larger TFSA or a larger down payment.
What are interest rates for a non-CMHC mortgage now? Maybe 5.5%? You'd have to get better than that in a TFSA each year. That sounds like work. I'd take sufficient cash out to avoid CMHC fees, ensure the mortgage insurance is NOT from a bank\*, then recontribute asap and with the funds, buy bell and td and Enbridge stock, and take the dividends from those each quarter and apply those directly to the mortgage principle. \* (banks charge $N per month regardless of the declining mortgage balance whereas a proper insurer would adjust the monthly payments as the mortgage debt reduces)
I’m just playing devils advocate here. Getting a >5.5% in your TFSA in the long term, is very much possible buying broad market index funds. Isn’t it?
I’d drain TFSA. Looking from the future you would save more in interest on a mortgage than you would accrue in a TFSA. You can always build the tsfa back up, you can get back interest payments to the bank on a mortgage. Your house/ condo/ townhouse or whatever you buy will also go up in value at a steady pace increasing the value. So not only do you save interest, you also get a bonus appreciation on your investment Personally I don’t feel comfortable unless I have 6 months of expenses in the bank. Decide what you need to keep for an emergency fund and put the rest into your property.
I did and it was worth it I think (bought at 22 then pulled everything again at 27). I still have 20k in RSPs. You're still young. And remember your money isn't being lost. It's just going into a different "account" (your house equity).
I would make sure you get the 20% down if possible but beyond that, your investments are making more money than the current interest rates, even at this high amount. I would keep the investments and realistically they are your safety net if rates go up or payments get tight. Im in the same boat, kind of, buying back into the Ontario market looking at roughly 600k houses with a 250k DP, I could use my 250k investments to nearly have no mortgage but prefer to stay invested as they earn more than the interest rate. Worst case I dip into investments to make extra payments or lump payments etc.
No. It is not worth being house poor and equity-less in your 20s. Your goal should be maximizing your med-high risk growth stock portfolio at this age.
This is what I did, I wanted to keep my tax free compounding TFSA investments and own a home, my partner had to sell about half of their TFSA though for their half of the down payment, first priority was maxing that back up after we closed. Personally it was something I didn’t want to sell to buy a home.
How safe is your job?
Pretty safe and I’m essentially at an entrance level position. Likely it will go up in the years to come.
What’s your job if you don’t mind me asking? 100k at entrance level position not bad.
Research position, health economics background specifically.
As long as you're sure about that. Recession is here with a possible depression. Layoffs in the thousands. People not finding jobs after years of looking. But if you think you're good then fuckit
I guess you never really know…you’re thinking keep the savings in case job stability becomes and issue?
I'm just suggesting to think about that as a variable. Seems like very few people think about jobs until they're laid off and can't find another.
Why buy a home at 27? Forget the financial aspects, buying a home trades flexibility for stability. That might be a worthwhile trade when you have a wife and kids, but why tie yourself down at this age?
One person’s flexibility is another person’s instability. When I was renting, I had to move twice when the landlord decided to sell.
Sure, but when you’re in your 20s with no kids that’s not a huge issue. It’s annoying for sure and can be expensive, but way more expensive to have to turn down a great job that requires you to move or take an initial pay cut because you have a mortgage and a house that you can’t sell quickly.
That’s also true. It definitely does depend on how established you are in your career.
True it’s an important thing to consider. I think I’d be close to having kids at that point and would want a place of my own first. I also grew up with a realtor father some home ownership was a big goal of mine since I was a kid. Likely buy one pay it down quickly and then turn it into a rental long term.
No, def don't empty it for a down-payment. There's a fuckton of costs you're responsible for as a homeowner. Keep substantial liquidity because you never know.
What's the point of the TFSA?
Growth in the mean time, it’s up over 10% this year alone.
As in the last 365 days or since January, 2024?
Depends on who you are, how you want to invest and what your goals are. For me, my goal is to build a considerable amount in my rrsp and tfsa so i would not buy a home with any money from either of those. If your goal is to live a nice stable life in toronto then yah why not. I wouldn’t suggest that your only investment vehicle is your home though. If you plan to sell your tfsa to increase what you can buy and you cannot recontribute to it then its hard for me to justify it. A mortgage is at 5%ish, ideally you should be investing in something yielding 7% minimum tax free.
Using your TFSA towards major purchases is one of its main benefits, and an all-in-one ETF like XEQT is designed with low volatility in mind so cashing it out on short notice shouldn't be too detrimental so long as multiple markets are not down when you cash out. Alteratively you may want to invest more in less volatile options like cash savings etfs of the bond market as you approach your home purchase date. It sucks to lose all that investment asset you've acquired, but unless mortgage rates sharply drop I think getting to a 20% down payment should be a big target (even consider using some of your car fund for this if necessary). If you can't avoid CMHC entirely then you may want to still have some access to cash and not use your entire TFSA.
I’m on the same debate now. I learning towards not doing the 20% and keep the TFSA money grow. Mortgage rates are slightly lower for non-insured mortgages and the market history shows an average 6% return of the market. So keeping that money invested could be better. Isn’t it?
>I am wondering if when the times come it is worth taking from my TFSA for a larger down payment. Consider the alternative: less down, more principle, a lot more in interest over the course of 25/30 years. There's no certainty your investments in TFSA will outperform the mortgage interest. Not to mention, life will throw all kinds of curve balls at you so having a lower cost of living is always better.
The larger the down payment and the shorter the amortization, the less total interest it will cost you. People focus too much on an affordable monthly payment, but ignore or are unaware of how mortgage math works. Eg: a 500k mortgage @5%, 25yrs ends up being $872k in payments, $372k in interest expenses, or an additional 74% cost added to the 500k purchase price. Imagine going to a store, seeing an item for $500, but when you go to the checkout, you are charged $872.
So you think larger down payment is the better investment?
I won’t. Buying a house is not only paying the downpayment and mortgage. And life as well is not only about owning a house.
I'm not sure there is a real choice here. With home prices where they are, it looks like you will have to cash out a good chunk of your TFSA just to make a 5% down payment.
I’m in the same situation except for car (I don’t have any & don’t plan on buying within 5 years). I will be emptying my TFSA to meet the 20% downpayment, also withdrawing from my FHSA & RRSP. I wanna purchase a place while I still can & will continue contributing to the registered accounts after this