In an ideal world, everyone would own a home and have a retirement nest egg. In reality, many Canadians have to choose to either enter the housing market or start saving for their later years. The choice is driven by the rising cost of living, especially in major cities.
According to a new survey released by Sotheby’s, many homeowners — one in five – put off those retirement contributions to buy a home. Thirty-one percent of respondents used RRSP withdrawals to fund a down payment. Seventy-one percent had used personal savings.
Is it wise to choose a home over retirement? Experts are divided on the issue. It may come down to lifestyle factors in addition to your financial sense.
Confidence in the Housing Market
Perhaps not surprisingly, given the high costs of buying a home, most respondents to the Sotheby’s survey had faith in the market. A staggering 78 percent think their home will match or outperform other investments, with 48 percent thinking the house will do better.
For many people, this answers the question. If you can make a higher return on the value of a home, why not park your money there? On paper, it may make sense to purchase the big asset as soon as possible.
Retirement Accounts Can Bring in High Returns
Not so fast. It’s true that the Canada Revenue Agency can give you a break on RRSP withdrawals for a home purchase. But not putting money in retirement investments can cause you to lose out. In some cases, contributing to a TFSA or RRSP can result in higher financial returns than paying down a mortgage.
It’s a tricky calculation, because you want to weigh the interest you pay on your mortgage debt against the return you get on your retirement investments. Both fluctuate, and neither are completely predictable.
Investing your money in a home can be a smart choice, but there are several figures to balance: rise in home value, interest paid over the life of the mortgage, and return on retirement investment.
Lifestyle Factors
Retirement investments are at arms’ length. Even if you track the market closely, you won’t do much except analyze your statements. Buying a home is an entirely different scenario. You have to invest in maintenance, utilities, renovations, and pay property tax. These may add to the value of your home, but they also take up your time and energy. Before you choose a home investment, you might want to think through everything that home ownership entails.
Don’t Overthink
Retirement contributions ensure you have a nest egg, but it also makes financial sense to get in on the housing market. In that sense, either choice you make has its upsides. You are putting money toward your future, whether it is in a home or in much-needed cash for when you stop working. Hopefully, eventually, you will have enough funds to take care of both.
Compare Mortgage Rates Online
When you are planning your financial future, it’s important to know all of your available options. Compare rates online to find the best Toronto mortgage rates. Don’t worry, there are even mortgage calculators that can help you with all the mortgage math.
