TFSA, FHSA and RRSP

The Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and First Home Savings Account (FHSA) are financial accounts with key differences in terms of contribution limits, withdrawal rules, tax benefits, and eligibility.

Contribution Amounts and Limits

TFSA: The annual contribution limit for a TFSA is set by the Canadian government and can change. In 2022, the limit was $6,000, and in 2023, it’s $6,500. The lifetime contribution limit for 2022 was $81,500, and for 2023, it’s $88,000. Exceeding these limits results in a 1% monthly tax on the excess amount.

FHSA: You can contribute up to $8,000 annually to an FHSA, with a maximum account value of $40,000. Contributions may be eligible for an income tax deduction.

RRSP: Contributions are tax-deductible, with the limit based on 18% of your yearly income or a maximum amount (e.g., $30,780 in 2023). Unused contribution room can be carried forward.

Withdrawals

TFSA: You can withdraw any amount from your TFSA at any time, tax-free. Withdrawn amounts can be recontributed in the future if you have available contribution room. TFSA withdrawals don’t need to be reported on your tax return unless there’s a taxable benefit.

FHSA: Maximum withdrawal is $40,000. Eligible for withdrawal after signing a house purchase contract. Must reside in the purchased house within a year of acquisition. The qualifying home needs to be in Canada or be Canadian co-operative housing. The entire available FHSA funds can be withdrawn tax-free if qualifying requirements are met. Joint homebuyers can contribute from their respective FHSA funds. The FHSA must be closed within a year after a tax-free withdrawal for a home purchase, and it cannot be reopened. Qualifying withdrawals must be made within 30 days of moving into the home.

RRSP: Withdrawals are generally considered taxable income. After age 71, you must close your RRSP and convert it to an RRIF or purchase an annuity. Withdrawals from RRIF or annuity are subject to tax. Overcontributions may result in tax penalties.

Tax Benefits

TFSA: Contributions are not tax-deductible, but income and management fees in your TFSA are tax-sheltered. Withdrawals from TFSAs are tax-free.

FHSA: Contributions may be eligible for an income tax deduction, withdrawals are tax-free, and the income is tax-sheltered.

RRSP: Contributions are tax-deductible, reducing taxable income. While income within the RRSP is tax-sheltered, withdrawals are subject to taxation. The tax rate on withdrawals is generally lower than the deduction claimed at the time of contribution.

Eligibility

TFSA: To open a TFSA, you must be a Canadian resident over 18 years old and possess a valid Social Insurance Number (SIN).

RRSP: Canadian residents can open an RRSP between ages 0 and 71. Some financial institutions may require you to have income to open an RRSP.

FHSA: Individuals must be Canadian residents, at least 18 years old, and must not have previously lived in a qualifying home in the 5 years prior to opening an FHSA. A qualifying home is one of two options. The first is a home you owned or jointly owned. The second is a home your spouse/common-law partner owned or jointly owned.

Summary

There are three main savings accounts offering Canadians different ways to save their money. Each of the three accounts has a different set of rules regarding contribution limits, withdrawal implications, tax benefits, eligibility. The TFSA offers tax-free savings with no withdrawal limits, the RRSP offers tax-deductible deposits to a certain limit and taxable withdrawals, and the FHSA offers tax-deductible contributions and tax-free withdrawals for the purchase of a first home in Canada.  It is recommended to speak with a financial advisor to determine the best savings option for you.

Title insurance is a type of insurance that provides protection to homeowners and mortgage lenders against issues that may arise with the title of a property. In Canada, title insurance is becoming increasingly popular as it offers an additional layer of protection and peace of mind to both buyers and lenders.

When purchasing a home, title insurance can protect against a variety of potential issues such as title fraud, encroachments, zoning violations, and unregistered easements. It also covers legal fees and expenses associated with resolving title-related issues, which can be costly and time-consuming.

While title insurance is not mandatory in Canada, it is highly recommended as it can offer valuable protection against potential issues with the title of a property. It is important to note that title insurance is not a substitute for a thorough title search or legal advice from a qualified professional. However, it can provide an added layer of security and peace of mind for homeowners and lenders alike.

In conclusion, title insurance is an important consideration for anyone purchasing a home in Canada. It provides protection against a variety of potential issues with the title of a property and offers peace of mind to both buyers and lenders. With its ease of obtaining and one-time purchase, title insurance is a smart investment for any homeowner or mortgage lender.

APR represents the total cost of your mortgage loan over a year, expressed as a percentage. It includes both the interest rate on the loan and any additional fees or charges associated with obtaining the mortgage. By considering all these costs, the APR helps you compare different loan offers from various lenders more accurately.

Here are a few key points to help you understand APR better:

Interest Rate

The interest rate is the cost you pay to borrow the money, expressed as a percentage of the loan amount. It determines your monthly mortgage payment.

Fees and Charges

In addition to the interest rate, lenders may have various fees and charges associated with the mortgage, such as origination fees, closing costs, and discount points. These costs can vary among lenders and significantly impact the overall cost of the loan.

Amortization and Term

The APR takes into account the length of the loan and the way the interest is amortized over time. It considers factors such as whether the loan has a fixed or adjustable interest rate and the repayment schedule.

Comparison Tool

The APR serves as a valuable tool for comparing mortgage offers from different lenders. Since it includes both the interest rate and additional costs, it provides a more accurate picture of the true cost of borrowing.

Limitations

It’s important to note that APR has some limitations. It assumes you’ll keep the loan for its entire term and doesn’t consider future changes in interest rates. Additionally, not all fees may be included in the APR calculation, so it’s essential to review the loan estimate and closing documents for a comprehensive understanding of the costs.

Remember, the APR is not the same as the interest rate. The interest rate represents the cost of borrowing alone, while the APR encompasses the interest rate plus other charges. When comparing loan offers, it’s wise to consider both the interest rate and the APR to make an informed decision about the mortgage that best suits your needs.

Why do my groceries cost more than last year?

The answer is inflation, and the Bank of Canada has been consistently raising interest rates to try to slow down inflation, but inflation continues to be an issue. Food prices have increased by over 11% from last year and Canadians are struggling to afford to feed their families. In addition, the raising interest rates are putting stress on a lot of Canadians with a variable rate mortgage, with some Canadians seeing their monthly payment increase by 100s if not 1000s of dollars! While it was my belief that the Bank of Canada would pause rate hikes in 2023, I am no longer confident it will happen.

Fixed mortgage rates have actually come down recently and we can hold a rate for up to 120 days. This means if there is another rate hike in the next 120 days, you can lock into the lower fixed rate we have held for you. It is a great option for anyone with a variable rate and can provide some peace of mind over the next 4 months!

If you would like to read more about inflation in Canada, check out this article.

https://dominionlending.ca/economic-insights/canadian-inflation-disappointingly-high-in-november

Does it feel like it’s too late to start investing? Don’t know where to start?

Good news, now is the best time to start! Investing money can be simple and the best part is you do not need a lot of money to start. A small contribution each month or each paycheck will compound into massive savings over time. Consistency over time will lead to life-changing results. As an added bonus, investing now while markets are down is an opportunity to earn higher returns on your investment when markets recover. Here are a few tips to get started:

1. Keep track of your spending and separate your expenses into needs and wants.

2. Determine how much money is required to cover your needs every month.

3. Look at your expenses related to wants and decide which of those things you would be willing to live without.

4. By choosing items we can live without each month, we now have money that can be invested.

5. Set up the investments to be made automatically from your account and consider the new investment as a needed expense.

Over time, as you start seeing your investments grow, you may find yourself wanting to save even more and some of those expenses related to wants are no longer important to you. That’s amazing! Invest the extra money and see your investments grow even faster.

Do you want access to the best lenders, with the best mortgage options?

Of course you do! Everyone wants to get the best rate with the best lenders available. Your credit score plays a key role in determining which lenders will offer you a mortgage, but there’s more to it than just a good credit score.

A good credit score is considered 680+. Your credit score is based on how much debt you have in relation to your credit limit, how many credit cards or tradelines you have, and your history paying back credit.

The 2-2-2 rule is a used by lenders along with a good credit score. Lenders like to see 2 forms of revolving credit like credit cards, lines of credit, or car loans with a limit of at least $2,000 and a clean history of paying off the credit cards for 2 years. It takes more than just having the credit cards active. The key to the 2-2-2 rule is to use the credit cards regularly, keep the balance below 30% of the overall limit and the most important thing is to pay off the cards in full every month.