Lifestyle | From tenants to owners: when? how ?

The situation

Spouses Louis*, 32 years old, and Amélie*, 27 years old, plan to acquire their first property after several years as tenants.

“We have been saving for several years to buy a property,” says Louis in discussion with The Press. We are ambivalent between buying our first property of our liking in 2024, despite high mortgage rates and prices, or remaining in rental housing for one or two years, waiting for interest rate reductions while contributing more to our accounts registered savings [REER et CELI] whose assets could be used as a down payment. »

Louis and Amélie anticipate the cost of purchasing a first property “to their liking” at around $500,000.

They have already obtained a mortgage prequalification for $400,000. This loan will be added to the planned down payment of a minimum of $100,000 to avoid additional costs of mortgage loan insurance.

As for the budgetary impact of their first property project, Louis and Amélie anticipate that their total residential costs could amount to around $38,000 per year, or $18,000 more than their current tenant budget.

Also, because their next place of residence would be further from their workplaces, Louis and Amélie anticipate adding $10,000 to their annual transportation budget.

Ultimately, their transition project from tenants to owners could increase their total lifestyle budget to around $94,000 per year, compared to their current budget of around $66,000.

With their employment income totaling some $145,000, and savings habits which have allowed them to accumulate some $236,000 in their personal RRSPs and TFSAs, Louis and Amélie believe they have the means to own their first property and a significant increase in their lifestyle.

They are seeking advice to validate the financial preparation of this first property project, as well as its impact on their long-term personal financial planning.

Also, they are wondering about the right time to carry out their project: starting this year despite high interest rates and prices, or waiting for a possible drop in rates and property prices while continuing to accumulate money. savings for their down payment.

The situation of Louis and Amélie was submitted for advisory analysis to Daniel Lanteigne, who is a financial planner and senior partner at the financial services firm Groupe Mirador, based in Quebec.

Advice

From the outset, Daniel Lanteigne notes that spouses Louis and Amélie demonstrate “an aptitude and capacity to set financial goals and achieve them.”

Louis and Amélie must take into account that their total housing costs will have an increasing impact on the evolution of their financial situation in the long term.

That said, for the successful continuation of their first property project, Daniel Lanteigne warns them against two elements which, sometimes, confuse the decision-making process of first buyers.

Firstly, reasons for decisions such as the expectation of a drop in interest rates or a drop in residential property prices “relate to the economic situation and cannot be easily anticipated”, indicates M .Lanteigne.

Concerning a rate cut, “we can think that once inflation is contained, interest rates will fall again. However, it is very possible that the Bank of Canada decides to keep a cushion [de taux d’intérêt relevés] in order to be able to act if necessary to redress difficult economic conditions,” points out Daniel Lanteigne.

As for the possibility of a drop in real estate prices, “the game of supply and demand continues to be in full swing. The prices asked by sellers will not fall as long as buyer demand remains strong,” believes Mr. Lanteigne.

He also advises Louis and Amélie not to let themselves be influenced by social pressures for the purchase of a first property among couples of their age, to the detriment of the “financial realities” of such a project.

“Louis and Amélie probably hear it often: “All couples our age buy a house. Why not us ?” Or again: “Paying rent is paying someone else’s mortgage,” points out Daniel Lanteigne.

Such thoughts often fail to take into account that many first-time buyers must obtain financial endorsement or funds from loved ones in order to qualify for a first mortgage.

We also make the mistake, indicates Mr. Lanteigne, of comparing the amount of rent paid and the amount of future mortgage payments alone “without taking into account interest costs and other costs of property such as transfer taxes, municipal and school taxes, insurance, maintenance and renovation costs, etc. “.

Hence the importance for the couple to think carefully about their project according to their objectives.

“In their case, I consider that they do not have to hurry with their project. A postponement within five years could even be advantageous for them to consolidate financial preparation,” points out Daniel Lanteigne.

In the meantime, he advises Louis and Amélie to pay particular attention to these two elements:

– Open a CELIAPP (tax-free savings account for the purchase of a first property) and maximize contributions with tax credit to the allowed amounts, that is to say $8,000 per year or 40,000 $ for life for each spouse.

“The CELIAPP is a new type of registered savings account which combines the advantages of the RRSP [épargne-retraite] and TFSA [épargne générale]recalls Daniel Lanteigne.

“The CELIAPP allows savings to grow tax-free, and withdrawals are not taxable and with no obligation for subsequent repayment. »

– Optimize RRSP contributions based on their annual tax allowance.

By proceeding in this way, recalls Daniel Lanteigne, Louis and Amélie continue to benefit from the tax advantages of RRSP contributions on their taxable income while increasing their assets from which they will be able to draw on a RAP (property ownership plan) as a down payment. funds for their first residential property.

Under current standards, each spouse of a first-time buyer couple can withdraw up to $35,000 from their personal RRSP as part of a HBP, which can total $70,000 in down payment for the joint purchase of a first property.

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