New home buyers, or parents helping with children's home purchases, might struggle with the tradeoff of whether it is better to wait and save for a larger down payment or buy a home with existing savings and begin saving for retirement.
Both approaches can work. A bigger down payment and smaller mortgage means less debt, but saving and investing earlier results in compound growth. So which is better?
The answer might depend on various factors such as personal lifestyle and spending habits, risk tolerance, future plans for moving, real estate market health and trajectory of stock markets, as well as rent prices.
But, considering the current market reality, buying early might be better than saving for a larger downpayment according to some financial advisors
A 10% down payment coupled with mortgage insurance rates and low interest rates could result in enough equity to ride out small dips in future housing prices. The extra savings invested in RRSPs and tax-free savings accounts could end up in a better position than if a 20% down payment was made.
Generally, cash invested in the stock market generates better returns than cash tied in in residential real estate. As such, smaller down payments are sometimes a better option.
The Loretta Phinney Team can help you with your real estate questions. Contact us today with your real estate questions