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Downpayment on a Home

Q - I'm able to make a reasonably large downpayment on a home but I was thinking of only putting down the minimum required, 5%, and replacing my 4-year old car with a new car instead.  Please advise. I live in Canada.

A - Glad you mentioned that you live in Canada.  Mortgage interest on a principal residence is not tax deductible in this country.

Given that, the advice is easy.  Make as large a downpayment as reasonably possible!  The interest you save, over time, may well represent the value of a new car.  If you can make a downpayment of at least 20%, you will also save on the mortgage loan insurance you are required to pay in Canada.  This is close to 3% of the cost of the home.

As for the car issue, if you choose to put down a larger downpayment, take the interest savings and place the money in a special account. While you are driving your 4-year old car, your 'new car money' will be growing!

Go and see a mortgage broker to get the exact figures involved in a 5 % downpayment versus a larger downpayment.  The numbers will speak for themselves.  Good luck!

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