F.H.S.A. who thinks this is a great investment to save to buy a first home?

[walkonby]

Not sure if any of you have been following the news ( financial ) but this is the first I have heard of this.

The new tax-free First Home Savings Account ( F.H.S.A ) is a registered savings account that helps Canadians to become
first-time home buyers by contributing up to $8,000 per year (up to a lifetime limit of $40,000). The funds can be withdrawn
but can only to be used to buy a first home. The time limit to have one is 15 years.



I always knew about that other way of borrowing from your RRSP account to get a down payment together, then repay it back
within a certain number of years, but this one seems a bit better!
You get to claim the deposits you make every year as an income tax credit! You can't do that with a TFSA.

Still unsure if the interest you earn on one of these FHSP's is good, fair or great?? What I think I liked about this is IF a single person
decided after 15 years that they no longer wanted to buy a home, they can ( without penalty ) transfer all the funds into their RSP...
or into their RIF's ( if they are that old? 71 )
I consider that a win, but for some they may not.

Any financial wizards here want to chime in? I know sc has a few who are clever!

[Shwa Girl]

@walkonby , nope, not a financial wizard, but wanted to comment if this is o.k.
The amount that can be saved in total, in this new account, is usually not enough for a downpayment, without getting insurance, for GTA priced homes.

I think I have mentioned Sean Cooper's story in the past, and how he saved for his home and paid off his mortgage in 3 years:
1. lived in his mother's basement and paid her rent
2. went to university and worked during university
3. first full time job, saved more for downpayment (note: was saving during university too)
4. bought his house, lived in the basement, rented out upper levels
5. got a weekend part time job (No Frills)
6. worked a freelance job in the weekday evenings
7. used public transit or rode his bike (note: no car)
8. lived off peanut butter sandwiches and Kraft dinner, so ate cheaply
9. paid off his mortgate and still lived in the basement
10. created a blog, has a YouTube channel, wrote a book, and started to travel around the world
Sean Cooper: "Burn Your Mortgage" Author, Personal Finance Expert, and Speaker - Sean Cooper (seancooperwriter.com)

Sean Cooper - YouTube

I guess today, one more step would be added: buy the cheapest home or condo you can and pay it off. And have an emergency fund before buying the home.

Hope the financial wizards will chime in and tell me where I am wrong or give some of their great advice. @Blunt ??

[walkonby]

@Shwa Girl I feel Sean Cooper's plan is a little too unique. You first needa set of parents who either own their home,
or as in his case lived in the basement of his mother's rental house? Without that first step the plan is not appealing.

This savings plan allows for up to $40,000 to be saved in as many years as it takes you, so someone who can toss in the
maximum $8,000 each year can reach the maximum quicker AND if there is a couple, each of them can have their own account.
( total $80,000.00 )

I have not bought a home in a long time but isn't $80,000.00 a half decent start towards the down payment?
Plus if the single person or the couple have RRSP's they can borrow against them ( Home ownership plan )
The 2 savings plans can work in tandem.
The part I thought was very appealing was for each year they deposit into their F.S.H.A. they get an income tax
receipt for the full yearly deposit ( similar to the RRSP ones )

I'm sure no matter what, home ownership IS very difficult these days.

[HermanH]

@walkonby , nope, not a financial wizard, but wanted to comment if this is o.k.
Hope the financial wizards will chime in and tell me where I am wrong or give some of their great advice. @Blunt ??

Some other ideas are:

1) Pay cash, whenever possible. You will always be aware of how much you have left
2) If you must have a phone, keep an oooooold cheap version and don't upgrade. Minimal service is all you need.
3) Delete subscriptions for streaming services. You don't need any of them.
4) Keep strong definitions of Needs vs. 'Nice-to-have'. Food and heat are needs. Coffee and cocktails are nice to have.
5) Cancel the gym. The bike and Mother Nature's will provide plenty.

[Anna Michele]

Yes I've tried asking about it but it's still very hush, hush . If I could open it now I would but I need to pay off my van that is 665 a month which would equal the $8000 a year so it's def doable once I have the funds available


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[Anna Michele]

Annual contributions are capped at $8,000 up to a $40,000 lifetime contribution limit.
A maximum of $8,000 unused contribution room can carry forward to the following year.
The account can stay open for a maximum 15 years4 or until the end of the year you turn 71

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[Anna Michele]

OK so I didn't realize it maxed at 40000 that might be hard to co er a down payment with that amount but your first time home is usually a fixer upper so that is what we will start with.
The unused amount is carried over so there is really no reason for me to not opening down even if I do 250 or so a month to start


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[Shwa Girl]

@walkonby , good points. Just to clarify his Mum was a single mother and it was her house he lived in. I guess if someone was on their own renting today, the rent is really high, compared to his rent.

But he also had a full time job, a part time job and self employed, plus rent from tenants, plus cut his transportation costs, insurance costs and watched his spending.

With all that, it's doable today. Maybe not in downtown Toronto, though.

[HermanH]

OK so I didn't realize it maxed at 40000 that might be hard to co er a down payment with that amount but your first time home is usually a fixer upper so that is what we will start with.

And, your FHSA shouldn't be the only account/funds used as down payment. It's just an additional benefit to help with the (larger) down payment.

[lilo0003]

From what I have read it makes sense for families in a good financial situation. Basically the parents that bought homes in the late 90s and as in our case never moved. DH and I plan to contribute the 1st 2 deposits for both sons and will do a 3rd when we sell our home. Their grandfather has already gifted a part of the inheritance and has asked us to do this. So even if they decide they don’t want home ownership it will be there for them if they wish. The risk I see is if they buy with a partner and that partner does not bring such a contribution. @AnnaMi chele you may want to wait a bit to open it as not many mainstream banks have this yet so I am not sure what this means.

[walkonby]

@lilo0003 I see TD, Scotia ( so that should include Tangerine? ) and RBC have them so far. Each bank has their own perks and/or fees??
All depends who you go with.
I would suggest if anyone has a financial planner they ask them many questions before taking the plunge.

[brunt]

To get right to the point, it is a great deal. It is entirely unlike RRSP or TFSA in that you get BOTH a deduction for the contribution AND tax-free withdrawals (if used toward a house purchase). RRSP has only deduction for contribution, TFSA only tax-free withdrawals.

This is a great deal if you qualify (there are restrictions, for example, you cannot have owned a house in the last four years). It is especially good if you earn a higher income. It is so good, that I don't necessarily expect it to last - at some point, a government will be elected whose one and only reaction to everything is NOT to spend massive amounts of money. This particular program is an overly generous solution in search of a problem. While I can understand its intent, I don't agree with its execution. But that is another matter entirely...

As far as what return you get, that is entirely up to you. Like all registered accounts, you are likely best off to get a self-directed trading account. There are Exchange Traded Funds (ETFs) that are safe, and pay a very competitive rate of return. Specifically, the high-interest funds (example CASH, CSAV, PSA) are all paying around 5% right now. And these funds just place the money in interest bearing accounts in Canadian banks. Very stable values, they start at $50 once per month, slowly moving up (now up to about $50.21) until they pay out (often end of month) the accrued interest ($0.21 in the example), with the price going back to $50. Twelve months of $0.21 makes for $2.52 per year, which on $50 makes for a 5% return. Very nifty place to just park money. Very nice too that you don't have to worry if the stock price may be low when you buy your house.

If you have a longer-term view, Scotiabank (BNS) is paying an almost 7.5% dividend. Hard to beat that sort of return. Higher return, but the stock price may be lower when you buy your house.

As always, in matters of investing, please make sure that you do your own due dilligence.

[brunt]

An example ETF can be found at this link: https://finance.yahoo.com/chart/PSA.TO.