The high-interest environment of the Toronto housing market has made saving a sizable downpayment a necessity. Although you don’t need to have 20% to put down, you will need to save as much as you can to bring your mortgage payments to an affordable level. How to save such a sum of money? There are a few tips you can follow.
How much do you need?
As simple as this sounds, knowing how much you need will help you make the right calculations for determining how quickly you can start looking for a home. The best way to come up with a figure that makes sense is to:
- Know how much you can afford to pay as a mortgage every month
- Know what you want to buy
- Know where you want to buy it
These three things will influence how much you can spend on a property and how much you should then save up as a downpayment.
Set a realistic goal
If you know that you can realistically afford a certain amount on a property, then aim to have between 10-20% of that amount as your down payment. Then take that amount and divide it by how much you can sensibly set aside every month. It might take you a few years to reach your goal, but knowing why you are saving will motivate you – especially since saving long-term is not always easy.
Automatic savings
A good way to stick to your goals is to set up an automatic savings plan so that money is deducted immediately from your paycheck and put into a high-interest financial vehicle. Instead of just putting your money into a regular savings account, put your money into a TFSA or a Home Buyer’s Plan so that you can take advantage of growth tax-free.
Create future budgets
A good way to save even quicker for your down payment is to anticipate the financial commitment of a home and take whatever the difference is between your current living expenses and put that away. For instance, if your current living expenses amount to $4500 a month with rent, utilities, telecom, food, car payments, etc… add to that what you would be paying every month towards property taxes, home/life insurance, a larger utility bill and any conde fees (if applicable). If the new total is now $5000 a month, take that extra $500 a month and put it into your savings account. Not only will you reach your savings goal quicker, but you will see how it feels to live on that future budget.
Life goes on
Buying your own place is a right of passage and something most of us aspire to. Finding a way around high interest rates by planning early and saving as much as possible for a down payment is the best solution to realizing your dreams of homeownership.
