Lifestyle | Financing the purchase of your first house

Spouses Thomas*, 29, and Maxime*, 30, plan to purchase their first residential property within two years.

The situation

For the moment, these young professionals at the start of their careers estimate their project at around $400,000, while keeping a margin in case this future property – a detached house, semi-detached house or a condominium apartment – ​​needs renovation work. minor renovations before moving in.

As for the financial preparation of this first residential purchase, Thomas and Maxime believe they have two assets in hand to facilitate the realization of their project while limiting their financing costs.

On the one hand, their good savings habits during their recent years of finishing university and starting professional employment allowed them to accumulate nearly $175,000 in financial assets. These financial assets are divided into a tax-free savings account (TFSA), a tax-free savings account for the purchase of a first property (CELIAPP) and a savings account which would be easily disbursable as a down payment on their first residential purchase. On the other hand, Thomas and Maxime benefit from financial assistance from their parents which would total $100,000 in down payment for their first residential purchase project.

In total, it is therefore a capital of at least $275,000 that the young spouses plan to be able to use as a down payment in order to limit their mortgage loan amount to around $200,000.

Nevertheless, considering the variations in their income while they are at the end of their studies and at the start of their careers, Thomas and Maxime are concerned about the evolution of their financial situation in the short and medium term. Among other things, explains Thomas during a discussion with The Presshe wonders how to optimize the management of their still very variable savings capacity in preparation for their first residential purchase project.

“Should we prioritize contributions to our TFSAs, our CELIAPPs or our RRSPs [régime enregistré d’épargne-retraite] ? How ? For what ? » asks Thomas.

“Also, what should we do with the balances of our student loans ($45,500 in total) which will soon expire and be transferred to personal loans, with an anticipated interest rate of around 6%? »

Finally, asks Thomas, “how can we properly prepare the financing of this first residential purchase while avoiding finding ourselves in a budgetary situation that is too tight afterwards”?

The situation and questions from Thomas and Maxime were submitted for advisory analysis to David Paré, who is a financial planner and investment advisor at Desjardins Wealth Management, in Quebec.

Advice

First of all, David Paré notes that Thomas and Maxime have good savings habits and a reasonable lifestyle which gives them “a good financial situation for people who are at the start of their careers. »

“Barring major unforeseen events, and if they can maintain their financial discipline despite the numerous incentives to spend among people of their age and professional situation, Thomas and Maxime should be able to carry out their first purchase of a residential property without too many financial and budgetary concerns. »

That said, in response to their questions about adequately preparing to finance their first residential purchase, David Paré offers them some advice for managing their financial priorities.

First, regarding the upcoming conversion of their student loans ($45,000 in total) into personal loans, he suggests they go with a 5-year term without worrying about accelerated repayments given that the interest paid on this type of loans are deductible from taxable income.

“Net interest costs [après impôt] of these student loans appear to be lower than those anticipated for their future mortgage loan, hence the relevance of using their capital to reduce this mortgage loan instead of accelerating the repayment of their student loans,” summarizes David Paré.

However, in the budget forecasts for their residential purchase project, Thomas and Maxime will have to add payments of around $870 per month (or $10,550 annualized for five years) for their student loans.

Secondly, in order to optimize the financing conditions of their residential purchase project, David Paré advises Thomas and Maxime to maximize their annual contributions to their CELIAPP for the next two to three years, depending on the evolution of their project. .

“At the rate of $16,000 per year in their CELIAPP [2 x 8000 $ chacun]and considering a net return of 4% per year on this capital, Thomas and Maxime could add almost $50,000 to their assets already accumulated in their CELIAPP, which would then total nearly $66,000,” explains Mr. Paré.

In addition, Thomas and Maxime will be able to adjust the use of tax deductions linked to CELIAPP contributions according to the evolution of their taxable income over the coming years. “Unused tax deductions can be carried forward to subsequent years,” recalls David Paré.

Ultimately, with this capital accumulated in their CELIAPP, the contribution of $100,000 expected from their parents, and their financial assets already constituted in TFSA and RRSP, David Paré estimates that Thomas and Maxime could have accumulated by 2026 nearly $340,000 in usable capital for the down payment on their first residential purchase.

“Considering a purchase cost of around $450,000, and a down payment of around $340,000, their need for a mortgage loan could be limited to around $110,000,” predicts David Paré.

“Financed at 5.5%, such a mortgage would cost them approximately $675 per month. Adding additional ownership costs such as property taxes [env. 5000 $ par année]as well as insurance, energy and maintenance costs [env. 8000 $ par année]the future residential costs of Thomas and Maxime as new owners are predictable around $1,760 per month or $21,500 per year, summarizes David Paré.

“This amount is obviously much higher than their current tenant budget. These are also future expenses to which Thomas and Maxime will have to add the repayment payments of their student loans, which are expected to total $870 per month or $10,500 per year. »

“It is certain that Thomas and Maxime must expect a significant increase in their budget,” notes David Paré, “when they become owners. This increase would be even greater if they had to opt for a more expensive property. At around $500,000, for example, they would need to budget at least $4,000 per year in additional financing and property tax costs. »

Likewise, underlines David Paré, Thomas and Maxime should budget for additional financing costs if they made their residential purchase within a year, in 2025, instead of waiting until 2026.

“They would thus deprive themselves of a year of contributions to their CELIAPP, which would reduce their capital available for down payments and increase the amount of their mortgage loan accordingly. Also, it is very possible that the reduction in interest rates anticipated by 2025 will not yet come to fruition. »

* Although the case highlighted in this section is real, the first names used are fictitious.