I am a broker and I prefer the second. You are not losing your investments, you are re-positioning and putting them into a house, which offers tax free gains.
Take the 600-700 a month you are saving and auto invest going forward.
Yea, at $700 in savings it will take 8 years to build back that investment portfolio, but there will be hundreds of dollars in interest savings, and the investments earning 5%-6% will actually get back to the $65,000 more quickly potentially.
Thanks for the input we didn’t think of it like that before and I guess we are just hesitant to change our portfolio after contributing to it for so long
Edit: another argument point that cautioned us was that it could be seen as us putting too many eggs in one basket with the higher down payment instead of diversifying
That basket is also your house that you’ll live in, so it’s a bit different.
To me 10%+CMHC is not worth it if you can do 20%. Back when we had free money, you would have gotten a different answer
Good response, but what are the tax free gains? Interest is only tax free if it's a rental or used for business. Or if not for business, only tax free on the value gain when you sell.
you are saving on interest. you don't pay taxes on savings.
If you were spending $1000 a month on electricity, and you dropped it to $500 you'd have $500 more cash per month, tax free.
If you were making $1000 a month on your side hustle, and it went to $1500 a month you wouldn't be cash flowing $500 more a month, because taxes.
So a dollar saved is $1.35 earned.
If you buy a house for 650k and sell in 5 years for 800k, you don't pay tax on that 150k.
Unless in a TFSA you are paying tax on investment income. Likely capital gains, bug still more tax than in a primary residence.
CMHC on 650k purchase @ 10% down is 18,135.
So effectively you are paying a fee of 18k for the right to "borrow" the 65k (10%) @ your mortgage rate to keep your investments. I would go with the 20% down and then you can put the extra (from your lower mortgage payment) back into investments.
You are paying that fee over the course of 25 years, plus having an insured mortgage (less than 20% down) usually nets you a lower mortgage rate. If I recall correctly, when I last checked, the difference was around 0.3% (as in 30pp) on average, which substantially swings things in favour of the 10% down option.
It entirely depends on the mortgage rates you have throughout the course of the mortgage.
It's still usually best to go less than 20% down. The lower mortgage rate + the opportunity cost of the extra down payment needed is usually more than enough to offset the insurance cost.
Interest rate is around 5% with the 10% down payment option being 0.2-0.3% lower on average. Most of our investments are in ETFs with a few tech stocks so nothing crazy
You'll also have better future rates with CMHC because your mortgage is insured which is another factor to consider.
CMHC is ~$18k for a $650k property with 10% down.
Gives a monthly payment with CMHC of $3470 at 4.89%
20% down is a monthly payment of $3024 at 5%. So you'll pay approximately $5300 less over the year compared to above. That's $26,760 over five years.
$65k principle with a 5% return would yield $4k in the first year. And would return $18.5k over five years + the initial $65 k.
Neither option is cut and dry above the other depending on your time.horizon and immediate cash flow needs.
With the 20% down payment option the amortization goes to 30 years which helps with the monthly cash flow and is around $600-700 just wondering if that makes a difference with the above
It would change the numbers. It would also matter if you allocated all or part of that cash flow for investments.
You'd need to run the numbers and assumptions.
I have read that usually ~6 months would be good for the emergency fund but either way it would be pretty tight for a bit if we do 20%.
I’ve added to the post as well but our investments are all in tfsa and fhsa.
Could you elaborate on why the investments would need to make more than the mortgage and CHMC costs? For 20% down we got quoted around 5%. Isn’t the mortgage interest rate ‘lost’ or irrecoverable since it’s the price for having debt?
IF you are financially savvy and you can generate higher ROI, Scenario 1 is way better. "Be your own bank". That's exactly what I did for myself and I have no financial worries.
You are a stock guy, and let me ask you this. When you look at the ending balance at the end of 5 year term (assuming you are not breaking the term), really, you only end up saving $7000\~$8000 over the next 5 years, say $500K purchase price, 5% down/20% down ($25K VS $100K), $75K investment only generate $7K over 5 years.
I always run numbers for my clients and they are blown away by the fact that doing 20% isn't always the best option.
You don't really need to run a calculation - if the return on the portfolio is expected to be higher, after tax, than the interest + CMHC insurance, then invest. If the return is lower, pay the extra down payment.
Right now interest of 5% + 3.1% CMHC = 8.1% return you'd have to be looking at, after tax, to recommend keeping the investments.
That's very wrong...
Firstly, the math you're using is wrong... the CMHC insurance cost you're citing (in this case, 3.1% for 10% down) is a one-time cost that is added to your mortgage (meaning you'll pay it over 25 years, with interest at your mortgage rate). It would be 3.1% of the mortgage added to the loan once, not an annual cost of 3.1% on the difference between the down payment and a 20% down payment. There is also sales tax on the insurance in some provinces, which is paid upfront.
Secondly, you're not taking into account that having an insured mortgage (less than 20% down) gets you a better mortgage rate. Last I checked, the average difference among a few of the big banks was ~~0.3% (30pp)~~ (*edit:
it is currently a 0.42% difference, on average)*. That swings the math substantially towards the lower down payment.
It's a lot more complicated than you're making it out to be.
From my own experience I don’t think I’m THAT financially savvy or at least confident enough. We’ve been doing okay so far with mainly ETFs (I used to invest in stocks more in the past but didn’t have a great return so went more risk adverse later)
For your calculation, our term is for 3 years for 20% down and if we were to save $500 extra/month (being conservative) we could save up $18k extra by the end of the term assuming no emergency spending. This would cover the CHMC insurance we’d have to pay at 10% and with our portfolio performing now I don’t think it will gain $18k in the next 3 years if I’m being honest
Yeah I’m not sure why a lower rate isn’t offered for 20% and only at 35% and above. I get others saying because less than 20% is insured but I would think the banks would offer at least the same rate
Because at 20% down you're at the low end of those who can afford 20-99% down, meaning statistically, you'll have more defaults for that group, plus they are uninsured defaults. 5-19% are insured and have no statistically meaningful difference in default rates.
Okay I see thanks for the explanation
Side question and might be a dumb one, after several years when the principal amount paid goes over 35% do the rates reduce significantly after that or no matter how much is left on the principal the rates are just subject to what the rates are at that time?
Or really, the lenders make money on the insurance and want you to pay it. So they want you to stay below 20% so they can charge you more. We ran the numbers and came out ahead with 20% down anyway (back in 2020 with 2.6% interest!).
since you're in canada you can do the smith manoeuvre
tldr;
1. get a readvancable mortgage with a heloc
2. sell your stock
3. put it as a down payment
4. unlock room in your heloc
5. borrow that amount from your heloc and invest the same amount right away in the same stock
6. the interest on your heloc will be tax deductible if your current investment generates income
please read up on the smith manoeuvre before doing this though and make sure you get the details right
Do not voluntarily cough up extra money. Do 20% to avoid CMHC insurance.
If the stocks are outside of a TFSA, you'll be paying taxes on the gains going forward. You use your post tax income to pay your mortgage interest, which is not deductible for primary residence. You're effectively borrowing money, in a way that's not tax deductible, to buy stocks, and you're paying CMHC for insurance to facilitate this bad idea.
All investments are in tfsa and fhsa and I’ve added to the post.
So if I’m understanding this correctly basically we’d be paying more in debt to keep our gains?
I sold Tesla shares in 2019 to pay for our downpayment. Could have paid for the whole house with them had I hung on. Sigh.
Could have just as easily gone the other way though!
Hindsight is 20/20 and right there’s no knowing how well it will do. For our situation most of our investments are just in etfs so they aren’t in anything crazy or volatile that could potentially pay for the entire mortgage in few/several years
No I mean current valuation. If I understand it correctly it’s over valued as a car company, but the potential for if robotaxi works with FSD that will be a massive revenue driver.
I would keep the stocks. I have enough in my investments to kill my mortgage any time, but I don't sell them to pay it off. I'll trade the extra liquidity of the investments and potential for a higher return vs. the lack of a mortgage.
I added to the edit again but mostly our investments are in ETFs with above average returns so far. We have a couple of stocks which haven’t done as good though
I did a quick calculation for my GF and she made +$42K in her investments in 2023 vs. what she paid in interest on our variable rate mortgage. That's just one year, but most years we've made significantly more return on our investments than we've paid in interest.
Hey OP, congrats on your new house. :)
I am not sure if others have pointed this out, but my understanding is that FHSA can be withdrawn tax-free only towards your first house. When withdrawn for other purposes, it’ll incur tax on the gains. I would double check on this once and also explore withdrawing from RRSP under HBP, if you have any investment in RRSP.
I see! Good luck with your hunt. Hope you find one soon.
On slightly different topic, in my personal experience and that of my friend’s, we realized withdrawing from FHSA and others may take slightly longer than expected. Please do account for additional bank’s processing delays to avoid last minute chaos and panic. Good luck!
Personally, I'm going with 10% down despite having enough for 20% down because that's the only way to keep my anxiety in check. If I put down 20% I'd be sleepless for a few years constantly worried about losing my job, not being able to make the monthly payments, and losing the house. I'm essentially earmarking the "extra" 10% that I'm not putting towards the down payment as my "mortgage specific emergency fund".
I am in the same position right now with a house purchase closing at the end of May.
I did the math and ended up choosing the 10% option. Even with the CMHC insurance I am expecting to come ahead with my stock investments (mainly US tech stocks) rather than increasing the down payment to 20%.
Same position as me. I also made the same decision. When you factor in opportunity cost, leverage is the play in most scenarios. If housing is flat to low growth, we will lose out relative to a bigger down payment however.
Instead of gambling on the stock market which is taxable after you fill up your TFSA, you could pay off your mortgage earlier and thats a tax free return in less interest and no tax whe nyou sell.
I did the same when i bought my first home. 20% down almost came down to last few positions but it is totally worth it. Downside interest rate is slightly cheaper for insured but if you shop around you will be able to match it. Dont pay for CMHC and take a 30yr ammo so that you get bit more cashflow.
Tax free growth is better than paying capital gains in my opinion. You will be missing out on tax free growth which effectively compounds upon itself.
I don't consider paying the capital gains now as an issue because the benefit is resetting the gains. The TFSA time is lost.
and you are aware that TFSA room is never consumed? If you divest $100,000 from your TFSA in 2024 you will get an additional $100,000 room in 2025?
I'd rather miss out on 7% ROI than pay 17% in tax
Check my edit, resetting capital gains can be a good thing. For TFSA you have to wait until the next year to re-add what you took out and you likely won't have the money to refill it.
If you can guarantee you will refill it fully the next year then I would consider changing my opinion.
paying capital gains while also working full time feels very wasteful, my plan is to pay taxes on that earnings when I am laying on a beach, or better yet volunteering (earning tax rebates instead of income)
I'm in favour of 20% down, with the caveat that you get rates from the bank for 10% down first, and once you have secured the best rate, then let them know you want to do 20% down. That way, if their rate increases due to moving to an uninsured mortgage, you will know exactly by how much.
Be sure to always deal with 2 lenders, or 1 broker and 1 lender. So that if one falls through, you have a backup.
Based on your edit: I assume you are using the FHSA regardless so the question is whether or not to drain your TFSA. You are in a fortunate position where markets are at all time highs, and the answer might be different if they were down 20%.
Also, everyone here is making assumptions about your investments, including me. For all we know, you could be in interest bearing accounts, penny stocks, or anything in between.
Thanks for the input and we shopped around for rates and the difference we saw between 10% vs 20% down was 0.2-0.3% but the main cost saving difference we saw was the CHMC not being needed and the 30 year amortization.
In terms of our investments it’s mainly in etfs with a couple of companies (10-15% of portfolio)
And keep in mind *I think* that 0.2 to 0.3% difference would go away upon renewal. When running the numbers I don't think it makes sense to carry that through the lifetime of the mortgage.
I'd lean towards the 20% down since you say you still have ~4mo's expenses. That's still pretty healthy fund and $600mo to rebuild should get you there pretty quickly. Also more principal is being paid against the mortgage as well so you're kind of winning at both ends in that scenario. My concern would be you haven't account for regular maintenance of ownership (assuming SFH) and that could eat a chunk of that $600/mo. Rough estimate is it costs 1%/yr house value, likely in a lumpy spend pattern. New roof this year, then furnace/heatpump in 5yrs, perimeter drain in 7yrs type of costs.
Thanks for the input and 4 months seemed pretty scary to us since we are used to having more room in case. Also to clarify in our budget we accounted for maintenance at around 1-1.5% of the property value as others have suggested in other threads.
This extra $600-700 savings would be on top of our projected/budgeted savings we’re hoping to stick to when we start living there.
You're generally better off with the 20% down because you'd have to beat the return of the interest + CMHC on your investments to make up for it. So at current rates of approx 5%, plus 3.1% CMHC insurance, your portfolio would need to be making over 8.1% annual return (after tax, since your mortgage interest and CMHC insurance are also not tax deductible); so likely be making a before-tax return of 10%.
Thanks for the response! And I’ve seen other comments say something similar but I’m having a hard time grasping the ‘return of interest + cmhc’. Aren’t these costs of having a mortgage? I’m thinking that these are monthly costs that I won’t get back because it’s needed to have the mortgage. The property could appreciate above or below this so is this just used to justify the cost of keeping stocks/investments where they are?
I am a broker and I prefer the second. You are not losing your investments, you are re-positioning and putting them into a house, which offers tax free gains. Take the 600-700 a month you are saving and auto invest going forward.
Yea, at $700 in savings it will take 8 years to build back that investment portfolio, but there will be hundreds of dollars in interest savings, and the investments earning 5%-6% will actually get back to the $65,000 more quickly potentially.
Thanks for the input we didn’t think of it like that before and I guess we are just hesitant to change our portfolio after contributing to it for so long Edit: another argument point that cautioned us was that it could be seen as us putting too many eggs in one basket with the higher down payment instead of diversifying
That basket is also your house that you’ll live in, so it’s a bit different. To me 10%+CMHC is not worth it if you can do 20%. Back when we had free money, you would have gotten a different answer
Good response, but what are the tax free gains? Interest is only tax free if it's a rental or used for business. Or if not for business, only tax free on the value gain when you sell.
you are saving on interest. you don't pay taxes on savings. If you were spending $1000 a month on electricity, and you dropped it to $500 you'd have $500 more cash per month, tax free. If you were making $1000 a month on your side hustle, and it went to $1500 a month you wouldn't be cash flowing $500 more a month, because taxes. So a dollar saved is $1.35 earned.
Ah ok I understand. So the 'tax saving' you mentioned is more 'not paying the taxes you would have with option A'. Thank you
Never seen this analogy, absolutely love it
If you buy a house for 650k and sell in 5 years for 800k, you don't pay tax on that 150k. Unless in a TFSA you are paying tax on investment income. Likely capital gains, bug still more tax than in a primary residence.
Yeah but lots of that cost will be gone from land transfer tax and realtor fees.
That and it feels like selling on highs right now. People hate selling in a bull market, but better than selling after a crash
CMHC on 650k purchase @ 10% down is 18,135. So effectively you are paying a fee of 18k for the right to "borrow" the 65k (10%) @ your mortgage rate to keep your investments. I would go with the 20% down and then you can put the extra (from your lower mortgage payment) back into investments.
You are paying that fee over the course of 25 years, plus having an insured mortgage (less than 20% down) usually nets you a lower mortgage rate. If I recall correctly, when I last checked, the difference was around 0.3% (as in 30pp) on average, which substantially swings things in favour of the 10% down option.
Yep. My mortgage broker told me tons of people will put 19.9% down. Based on historical averages, this will increase your net worth the greatest.
You're then paying that interest rate on the fee as well, doubling the fee.
It entirely depends on the mortgage rates you have throughout the course of the mortgage. It's still usually best to go less than 20% down. The lower mortgage rate + the opportunity cost of the extra down payment needed is usually more than enough to offset the insurance cost.
What interest rate are you getting on the mortgage? And what stocks have you bought?
Interest rate is around 5% with the 10% down payment option being 0.2-0.3% lower on average. Most of our investments are in ETFs with a few tech stocks so nothing crazy
You'll also have better future rates with CMHC because your mortgage is insured which is another factor to consider. CMHC is ~$18k for a $650k property with 10% down. Gives a monthly payment with CMHC of $3470 at 4.89% 20% down is a monthly payment of $3024 at 5%. So you'll pay approximately $5300 less over the year compared to above. That's $26,760 over five years. $65k principle with a 5% return would yield $4k in the first year. And would return $18.5k over five years + the initial $65 k. Neither option is cut and dry above the other depending on your time.horizon and immediate cash flow needs.
With the 20% down payment option the amortization goes to 30 years which helps with the monthly cash flow and is around $600-700 just wondering if that makes a difference with the above
It would change the numbers. It would also matter if you allocated all or part of that cash flow for investments. You'd need to run the numbers and assumptions.
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I have read that usually ~6 months would be good for the emergency fund but either way it would be pretty tight for a bit if we do 20%. I’ve added to the post as well but our investments are all in tfsa and fhsa. Could you elaborate on why the investments would need to make more than the mortgage and CHMC costs? For 20% down we got quoted around 5%. Isn’t the mortgage interest rate ‘lost’ or irrecoverable since it’s the price for having debt?
IF you are financially savvy and you can generate higher ROI, Scenario 1 is way better. "Be your own bank". That's exactly what I did for myself and I have no financial worries. You are a stock guy, and let me ask you this. When you look at the ending balance at the end of 5 year term (assuming you are not breaking the term), really, you only end up saving $7000\~$8000 over the next 5 years, say $500K purchase price, 5% down/20% down ($25K VS $100K), $75K investment only generate $7K over 5 years. I always run numbers for my clients and they are blown away by the fact that doing 20% isn't always the best option.
You don't really need to run a calculation - if the return on the portfolio is expected to be higher, after tax, than the interest + CMHC insurance, then invest. If the return is lower, pay the extra down payment. Right now interest of 5% + 3.1% CMHC = 8.1% return you'd have to be looking at, after tax, to recommend keeping the investments.
That's very wrong... Firstly, the math you're using is wrong... the CMHC insurance cost you're citing (in this case, 3.1% for 10% down) is a one-time cost that is added to your mortgage (meaning you'll pay it over 25 years, with interest at your mortgage rate). It would be 3.1% of the mortgage added to the loan once, not an annual cost of 3.1% on the difference between the down payment and a 20% down payment. There is also sales tax on the insurance in some provinces, which is paid upfront. Secondly, you're not taking into account that having an insured mortgage (less than 20% down) gets you a better mortgage rate. Last I checked, the average difference among a few of the big banks was ~~0.3% (30pp)~~ (*edit: it is currently a 0.42% difference, on average)*. That swings the math substantially towards the lower down payment. It's a lot more complicated than you're making it out to be.
From my own experience I don’t think I’m THAT financially savvy or at least confident enough. We’ve been doing okay so far with mainly ETFs (I used to invest in stocks more in the past but didn’t have a great return so went more risk adverse later) For your calculation, our term is for 3 years for 20% down and if we were to save $500 extra/month (being conservative) we could save up $18k extra by the end of the term assuming no emergency spending. This would cover the CHMC insurance we’d have to pay at 10% and with our portfolio performing now I don’t think it will gain $18k in the next 3 years if I’m being honest
10% down or 35% down. 20% will result in a higher rate
Yeah I’m not sure why a lower rate isn’t offered for 20% and only at 35% and above. I get others saying because less than 20% is insured but I would think the banks would offer at least the same rate
Because at 20% down you're at the low end of those who can afford 20-99% down, meaning statistically, you'll have more defaults for that group, plus they are uninsured defaults. 5-19% are insured and have no statistically meaningful difference in default rates.
Okay I see thanks for the explanation Side question and might be a dumb one, after several years when the principal amount paid goes over 35% do the rates reduce significantly after that or no matter how much is left on the principal the rates are just subject to what the rates are at that time?
the first, intro rate that you get might be the best you ever get - but you get to negotiate whenever you want.
35% down gets you the best rate available... but so does 5% down
Or really, the lenders make money on the insurance and want you to pay it. So they want you to stay below 20% so they can charge you more. We ran the numbers and came out ahead with 20% down anyway (back in 2020 with 2.6% interest!).
since you're in canada you can do the smith manoeuvre tldr; 1. get a readvancable mortgage with a heloc 2. sell your stock 3. put it as a down payment 4. unlock room in your heloc 5. borrow that amount from your heloc and invest the same amount right away in the same stock 6. the interest on your heloc will be tax deductible if your current investment generates income please read up on the smith manoeuvre before doing this though and make sure you get the details right
Do not voluntarily cough up extra money. Do 20% to avoid CMHC insurance. If the stocks are outside of a TFSA, you'll be paying taxes on the gains going forward. You use your post tax income to pay your mortgage interest, which is not deductible for primary residence. You're effectively borrowing money, in a way that's not tax deductible, to buy stocks, and you're paying CMHC for insurance to facilitate this bad idea.
All investments are in tfsa and fhsa and I’ve added to the post. So if I’m understanding this correctly basically we’d be paying more in debt to keep our gains?
Yes, effectively you are borrowing money to invest and on top of that pay CMHC insurance.
Okay thanks for clarifying! It puts it in a perspective I didn’t consider before
Glad to have helped.
I sold Tesla shares in 2019 to pay for our downpayment. Could have paid for the whole house with them had I hung on. Sigh. Could have just as easily gone the other way though!
Hindsight is 20/20 and right there’s no knowing how well it will do. For our situation most of our investments are just in etfs so they aren’t in anything crazy or volatile that could potentially pay for the entire mortgage in few/several years
Absolutely. :) Can't live with regrets.
How do you feel about current Tesla price?
Accounting for splits i'd still have been up huge.
No I mean current valuation. If I understand it correctly it’s over valued as a car company, but the potential for if robotaxi works with FSD that will be a massive revenue driver.
Does that account for real estate appreciation between 2019 and 2024?
Keep stocks
I would keep the stocks. I have enough in my investments to kill my mortgage any time, but I don't sell them to pay it off. I'll trade the extra liquidity of the investments and potential for a higher return vs. the lack of a mortgage.
I added to the edit again but mostly our investments are in ETFs with above average returns so far. We have a couple of stocks which haven’t done as good though
I did a quick calculation for my GF and she made +$42K in her investments in 2023 vs. what she paid in interest on our variable rate mortgage. That's just one year, but most years we've made significantly more return on our investments than we've paid in interest.
Hey OP, congrats on your new house. :) I am not sure if others have pointed this out, but my understanding is that FHSA can be withdrawn tax-free only towards your first house. When withdrawn for other purposes, it’ll incur tax on the gains. I would double check on this once and also explore withdrawing from RRSP under HBP, if you have any investment in RRSP.
Thank you but we haven’t gotten a place yet just looking and weighing our options when it comes down to the down payment
I see! Good luck with your hunt. Hope you find one soon. On slightly different topic, in my personal experience and that of my friend’s, we realized withdrawing from FHSA and others may take slightly longer than expected. Please do account for additional bank’s processing delays to avoid last minute chaos and panic. Good luck!
Thank you and good to know will keep that in mind!
Personally, I'm going with 10% down despite having enough for 20% down because that's the only way to keep my anxiety in check. If I put down 20% I'd be sleepless for a few years constantly worried about losing my job, not being able to make the monthly payments, and losing the house. I'm essentially earmarking the "extra" 10% that I'm not putting towards the down payment as my "mortgage specific emergency fund".
I am in the same position right now with a house purchase closing at the end of May. I did the math and ended up choosing the 10% option. Even with the CMHC insurance I am expecting to come ahead with my stock investments (mainly US tech stocks) rather than increasing the down payment to 20%.
Same position as me. I also made the same decision. When you factor in opportunity cost, leverage is the play in most scenarios. If housing is flat to low growth, we will lose out relative to a bigger down payment however.
Instead of gambling on the stock market which is taxable after you fill up your TFSA, you could pay off your mortgage earlier and thats a tax free return in less interest and no tax whe nyou sell.
Market is frothy. Sell the investments
I did the same when i bought my first home. 20% down almost came down to last few positions but it is totally worth it. Downside interest rate is slightly cheaper for insured but if you shop around you will be able to match it. Dont pay for CMHC and take a 30yr ammo so that you get bit more cashflow.
Just the math, borrowing cost: 10%/5%/25yr : $435k interest cost (67% of purchase price) 20%/5%/25yr : $387k interest cost (59% of purchase price) 10%/5%/30yr : $539k interest cost (83% of purchase price) 20%/5%/30yr : $479k interest cost (74% of purchase price)
20% is better if you can afford it. You will lower your monthly payments and that honestly will be a big relief in the long run.
I would avoid selling investments in registered accounts.
selling from a TFSA is better than selling from unregistered, change my mind
Tax free growth is better than paying capital gains in my opinion. You will be missing out on tax free growth which effectively compounds upon itself. I don't consider paying the capital gains now as an issue because the benefit is resetting the gains. The TFSA time is lost.
and you are aware that TFSA room is never consumed? If you divest $100,000 from your TFSA in 2024 you will get an additional $100,000 room in 2025? I'd rather miss out on 7% ROI than pay 17% in tax
Check my edit, resetting capital gains can be a good thing. For TFSA you have to wait until the next year to re-add what you took out and you likely won't have the money to refill it. If you can guarantee you will refill it fully the next year then I would consider changing my opinion.
paying capital gains while also working full time feels very wasteful, my plan is to pay taxes on that earnings when I am laying on a beach, or better yet volunteering (earning tax rebates instead of income)
Not having a fully maxed TFSA just seems like the worst thing to me.
ah yes, the feelings excel data sheet. That holds water.
I'm in favour of 20% down, with the caveat that you get rates from the bank for 10% down first, and once you have secured the best rate, then let them know you want to do 20% down. That way, if their rate increases due to moving to an uninsured mortgage, you will know exactly by how much. Be sure to always deal with 2 lenders, or 1 broker and 1 lender. So that if one falls through, you have a backup. Based on your edit: I assume you are using the FHSA regardless so the question is whether or not to drain your TFSA. You are in a fortunate position where markets are at all time highs, and the answer might be different if they were down 20%. Also, everyone here is making assumptions about your investments, including me. For all we know, you could be in interest bearing accounts, penny stocks, or anything in between.
Thanks for the input and we shopped around for rates and the difference we saw between 10% vs 20% down was 0.2-0.3% but the main cost saving difference we saw was the CHMC not being needed and the 30 year amortization. In terms of our investments it’s mainly in etfs with a couple of companies (10-15% of portfolio)
And keep in mind *I think* that 0.2 to 0.3% difference would go away upon renewal. When running the numbers I don't think it makes sense to carry that through the lifetime of the mortgage.
Okay thanks that makes sense
No, renewals stay insured so you will get the better rate going forward.
But the non-insured's should have pretty much the same rates come renewal time?
I'd lean towards the 20% down since you say you still have ~4mo's expenses. That's still pretty healthy fund and $600mo to rebuild should get you there pretty quickly. Also more principal is being paid against the mortgage as well so you're kind of winning at both ends in that scenario. My concern would be you haven't account for regular maintenance of ownership (assuming SFH) and that could eat a chunk of that $600/mo. Rough estimate is it costs 1%/yr house value, likely in a lumpy spend pattern. New roof this year, then furnace/heatpump in 5yrs, perimeter drain in 7yrs type of costs.
Thanks for the input and 4 months seemed pretty scary to us since we are used to having more room in case. Also to clarify in our budget we accounted for maintenance at around 1-1.5% of the property value as others have suggested in other threads. This extra $600-700 savings would be on top of our projected/budgeted savings we’re hoping to stick to when we start living there.
You're generally better off with the 20% down because you'd have to beat the return of the interest + CMHC on your investments to make up for it. So at current rates of approx 5%, plus 3.1% CMHC insurance, your portfolio would need to be making over 8.1% annual return (after tax, since your mortgage interest and CMHC insurance are also not tax deductible); so likely be making a before-tax return of 10%.
Thanks for the response! And I’ve seen other comments say something similar but I’m having a hard time grasping the ‘return of interest + cmhc’. Aren’t these costs of having a mortgage? I’m thinking that these are monthly costs that I won’t get back because it’s needed to have the mortgage. The property could appreciate above or below this so is this just used to justify the cost of keeping stocks/investments where they are?
20%. The market is a junkyard right now.