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A 27-year-old reader looking to buy a house with his longtime girlfriend has a question about putting together a down payment. They live north of Toronto, so this is a big deal. Expensive, I mean.

This couple is looking at a house in the $800,000 to $900,000 range and want a down payment of at least 20 per cent to avoid the cost of mortgage default insurance. The question is, where to draw the money from?

“I have heard from conflicting information on whether, alongside our cash savings, we should we access our RRSP for the down-payment on our first home or alternatively utilize our TFSA,” he wrote. “Which account would you recommend utilizing first for this large purchase?”

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For some thoughts on this, I consulted investment adviser Ben Felix of PWL Capital in Ottawa. Mr. Felix is a millennial, so he has a good understanding of what young home buyers are up against in putting together a house down payment. Here’s what he wrote: “Strictly from a financial perspective I would take the money out of the RRSP under the HBP before taking it out of the TFSA.

“We only own the after-tax portion of whatever we see in our RRSP account, while we own 100 per cent of what is in the TFSA,” Mr Felix added. “Taking $35,000 out of the TFSA means giving up on the growth on $35,000 while also not paying mortgage interest on $35,000 - not a bad trade-off. If we assume a 30 per cent income tax rate, then taking $35,000 out of the RRSP means giving up on the growth on $24,500 (the portion of the RRSP that you own) while also not paying mortgage interest on the full $35,000 - a better trade-off.”

One point against tapping an RRSP using the federal Home Buyers’ Plan is that you have to make annual repayments of a portion of the amount you withdrew, Mr. Felix said. The default is a 15-year repayment schedule.


Poll results

Aeroplan on the upswing: In the August 11 edition of this newsletter, I asked how you liked the new Aeroplan. Many subscribers appear to like the changes coming this fall, although they have not been happy with the program in recent years. Thanks to the 953 people who filled out the survey.

I will share the results of the August 13 poll on your bank’s handling of the pandemic soon.


Subscribe to Carrick on Money

Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.


Rob’s personal finance reading list

ETFs for DIY investors

A useful article highlighting some exchange-traded funds for do-it-yourself investors to consider. ETFs are an excellent portfolio building block, but it’s a job and a half to select the right ones for your portfolio from the hundreds available.

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Black voices in personal finance

For fresh perspectives on money and investing, check out this list of 10 Black North American personal finance voices.

No hotdogs (or hamburgers) here

Twenty-one snappy but affordable summer recipes. Warning to those who find avocadoes incompatible with smart personal finance. A bunch of the recipes here use them.

More on the new Aeroplan

A list of pros and cons according to the CreditcardGenius website. Nine pros, four cons.


Guest Q&A

Julia Chung, a certified financial planner (CFP) with Spring Financial Planning on the importance of saving, even as high rate savings accounts pay less and less.

Q: Julia, interest rates on savings accounts are falling day by day. Is there any point in using a savings account when the return may not beat inflation?

A: Absolutely! Savings accounts, even with the tiny little bits of interest available, are useful for a few things. Emergency savings, money you need in cash for the unexpected, should still be in a savings account because it's liquid and available. Savings accounts are also great places to set aside money for the kinds of bill you pay annually, like vehicle and property insurance, property taxes, insurance premiums (which are often cheaper when you pay annually), summer camps for your kids, vet bills, and that sort of thing.

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Q: When does it make sense to put money into riskier assets like stocks rather than savings?

A: These assets are for really long term money, money you don't plan to use in quite some time. This could be money that is meant to fund your retirement or your children's post-secondary schooling. This gives the money time to experience the natural ups and downs of stock markets,.

Q: Do you have a favourite online bank(s) for clients to use for their emergency funds?

A: My favourite bank for emergency funds is the one the client knows how to use, even when thinking is difficult in the midst of an emergency. The money should be accessible without a lot of roadblocks. Every person is different so this may be the bank you know and have always used, or if you're very savvy and confident in your ability to access online banking, you can perhaps look at other options. Utility is far more important than optimizing interest rates, especially for emergency funds.

Q: As a financial planner, how big an emphasis do you put on having money stored safely in a savings account for emergencies?

A: We put a huge emphasis on having money stored safely in a savings account for emergencies for all of our clients, before and during retirement. This advice definitely received a few eyerolls before the pandemic, but since then we’ve had countless calls and e-mails thanking us for being a boring old stick in the muds about this. Emergency savings feel like a waste of your time and money right up until you need them - and then they’re the best advice you’ve ever had.

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Today’s financial tool

I’m re-running this link to a financial planning firm’s portal for people who have money troubles and could use a free consultation with a financial planner. Stocks and the housing market are charging ahead, but there’s still a large number of people who have been financial slammed in the pandemic.


The money-free zone

It’s a personal mission to get more people to hear the song Ordinary Joe by Terry Callier. You might also like his album, What Color Is Love, which is one of the best Sunday morning albums ever.


More Carrick and money coverage

For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group. Send us an e-mail to let us know what you think of my newsletter. Want to subscribe? Click here to sign up.

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