Do Canadians favour the glitz and glam of a wedding or would they prefer to invest their money somewhere else?
When you’re ready to spend the rest of your life with someone, you may not be thinking price tags. But as the current average price of a wedding in Canada hangs around $50,000, you may want to think again.
According to our recent study, 84% of Canadians say they would spend their savings on other financial priorities, rather than on their nuptials. This year’s annual Cost of Love study sheds light on the financial concerns of both married and unmarried Canadians, showing how married folk would’ve rather spent their money in retrospect, and how unmarried Canadians prioritize future financial goals.
The survey found that 32% of married Canadians would rather have travelled with the money they spent on their wedding, and 20% would rather have invested the money. In comparison, 43% of unmarried Canadians would rather travel with the money they would potentially spend on a wedding, and one-third would rather invest it.
Canadians would rather invest in a door bell than wedding bells
Whereas in the past, a wedding was traditionally the number one financial priority for couples (followed by possibly a home, family, and finally retirement), 40% of all Canadians disclosed that they would rather use their wedding fund towards a down payment on a home. Moreover, one-third reportedly spent or would spend less than $5,000 on a wedding, showcasing a shift in how Canadians view their finances.
This comes at a time when the real estate market is constantly in the news, and we are being barraged with stories regarding affordability and interest rate hikes. The good news is that, in Canada, you can qualify for a mortgage with as low as 5% down, and as real estate sale prices have reportedly been on the decline, subsequently, it will cost you less to put a down payment on a home.
The national average price for homes sold in December 2018 was just over $472,000 – down 4.9% year-over-year. And theoretically, if you were to buy a home at the average price, you would only need $23,600 to put down. In comparison, the 2018 Cost of Love survey found the average Canadian wedding to cost $46,401.
However, if you’re thinking about buying a home, obstacles arise when you consider other factors aside from just the down payment price. At its first interest rate announcement of the year, the Bank of Canada held the overnight rate at 1.75%, but it also hinted at future rate hikes “to achieve the inflation target.” Already, we have seen a consistent increase in rates since July 2017 (when rates were 0.5%). If rates are to increase, this will also means an increase in mortgage payments since you’ll have to pay more in interest.
In addition, the mortgage stress test imposed at the top of 2018 set a higher bar set for qualification, meaning most people have to settle for a smaller mortgage, or will need more money access certain homes. To get approval on a mortgage loan, financial institutions now require all borrowers to qualify at the greater of two options: either the five-year benchmark rate published by the Bank of Canada (currently 5.34%), or the contractual mortgage rate plus two percentage points.
What to do when you want a home over a honeymoon
As this high-interest environment becomes our new reality, Canadians shopping for a home have to be more realistic about what they can now afford. It’s imperative to crunch your numbers, and maybe consider other options.
Maybe a smaller, cheaper home in a different area is the solution. Or maybe you’d be better off not borrowing as much from the bank, saving yourself thousands in interest payments. In this case, you’ll want to take some more time to save a bit more, and there are plenty of investment options where you can potentially grow your down payment, such as:
- High-interest savings account: This is generally the best and most accessible place to stash money for your down payment. These types of accounts are mostly offered by online banks and can offer you higher interest rates since they don’t have the typical carrying costs of banks with brick-and-mortar locations.
- Guaranteed Investment Certificate (GIC): Since the return on this low-risk investment is guaranteed, rates can be pretty low. And if you need to withdraw your money before the end of the term, you will likely pay a penalty. But at least it’s a safe, sure-fire way to make a bit of cash!
- Registered Retirement Savings Plan (RRSP): If you’re just starting your life together, this is likely your first time buying a home as a couple. And if you are a first-time home buyer, you and your spouse can withdraw up to $25,000 each from your RRSPs through the Home Buyers’ Plan (HBP) for your down payment. This means you could possibly have up to a total of $50,000 towards your first home. However, you will need to repay the money you withdraw, typically within 15 years.
Rising interest rates and a stricter mortgage stress test may have led to a decline in affordability, but if you’re still hoping to move in 2019, this may be your time to buy before another interest rate hike. Find the best rates from Canadian lenders and mortgage brokers. Is a wedding worth the money? Or would you rather put your wedding fund towards something else?