Planning Ahead

Originally published in MoneySense

March 2012 (Updated January 2020)

You can lower your borrowing costs by anticipating large expenditures

By planning ahead for large items such as a house, car or renovation, you can ensure you have the funds you need ahead of time. That way you won't be forced to finance large purchases with unexpected high-interest loans.

Buying a Home

Keep in mind that buying a home will cost you more than the purchase price. Be prepared to pay closing costs, such as land transfer taxes and lawyers' fees, plus ongoing costs, such as property taxes, home insurance, maintenance, and possibly condo fees and home improvement costs. Make sure you have enough cash and financing to cover all of these costs. As well, if this is your first home, you could consider using the Home Buyers' Plan to help you save the down payment. The plan allows eligible individuals to withdraw up to $35,000 tax-free from their RRSPs to purchase a home.

Buying a Car

Because cars don't increase in value over time, you should pay for them in cash if you can. The best way to do that? "Start a savings account a couple of years before you need to replace your car," says Barb Garbens, fee-only adviser in Toronto. "Then set up a monthly automatic deposit from your paycheque to that account. Any other way and it just doesn't get done." If you still don't have the cash, then evaluate your loan options. Your dealer may offer you a loan, but a home equity line of credit may offer a lower rate and better terms.

Home Renos and Upkeep

Try to pay for home improvements and maintenance in cash. A good rule of thumb is to budget 1% of the value of your home a year for these expenses. If you need to finance these expenses with a loan, a home equity line of credit will likely offer you the lowest rate.

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