Has owning your home become the new retirement savings plan? According to recent statistics, more and more Canadians are investing in their home rather than their RRSP. While half of Canadians haven’t contributed to their registered retirement savings plan, close to 70 percent of households currently own their own home.
It’s an interesting shift, and one that could prove extremely beneficial to budget-savvy individuals. Jason Heath, a certified-financial planner with Objective Financial Partners Inc. explained the rationale in a recent Financial Post interview, stating that “your money grows tax free” in your property, whereas RRSP savings feature fully-taxable withdrawals.
Benefits of Homeownership
One of the biggest financial benefits of owning your own home is the fact that it forces you to save (granted, you’re not putting this money into a savings account, but rather putting it towards your mortgage payments). The discipline of mortgage payments forces individuals to invest in their future, even if they can’t make the same commitment to their retirement savings.
While this isn’t an argument to stop contributing to your RRSP, it’s still a point worth pondering. If you’re currently renting in order to save money, make sure you’re actually putting that extra cash into a savings account. If the cash you’re saving is burning a hole in your pocket, rather than growing in an RRSP, you’re not really benefiting from your arrangement.
When It Doesn’t Make Sense to Buy
Granted, there are some situations where owning your home doesn’t make sense. If you’re on a temporary work assignment, going to school, or retired and living the nomadic lifestyle, now might not be the best time to put down roots. However, if you’re planning to stay put for a while, taking out a best rate mortgage and investing in a home certainly has its perks.
- Perk 1 – Tax Benefits
Homeowners are entitled to a tax exemption on any gains from a principal resident. Willing to put some sweat equity into your home? That’s the only way to not have to pay taxes on home improvements.
- Perk 2 – Leverage
Your home is a great bargaining tool when it comes time to accessing additional cash. No other investment will let you hold 95 percent debt to 5 percent equity.
How to Improve Your Home Properly
Want to make the most of your investment? Then consider a home reno. Even though the market is volatile right now, there’s still plenty of reason to upgrade your home in order to add value. Here are a few reason why:
- Funding is cheap
Historically low interest rates won’t be around forever. What’s more, most HELOCs are charging bargain basement rates. Right now, fiscally responsible homeowners have a handful of feasible options when it comes to funding an update, so don’t miss your chance!
- Contractors are offering discounts
Business is starting to slow in the housing market and it’s causing some contractors to sweat. This uncertainty has caused many contractors to slash rates in order to attract more work.
- Fixing up is more affordable than moving out
If you’re trying to decide whether to renovate or relocate, consider this – even though housing prices are on the way down, there’s no telling how long it will take for them to rebound back. As such, you can’t assume that you’ll easily sell your house if the market remains oversaturate. Remember: moving is almost always costlier than improving.
- You get to enjoy the results
Let’s face it, when it comes time to move, chances are your realtor is going to tell you that you need to do some updates anyways. So why not do them now, while the market is favourable? Not only will your pocketbook thank you, but you’ll also get to enjoy the fruits of your labour.
Invest in your future by investing in your home. Get pre-approved for the best mortgage rate available now.