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Capital Game

The FHSA and HBP: Two Powerful Tools to Buy Your First Home

Becoming a homeowner is a major financial milestone, but for many Canadians, saving for a down payment can feel out of reach. Fortunately, the federal government has created two highly effective programs to help first-time buyers: the Home Buyers’ Plan (HBP) and the First Home Savings Account (FHSA). When used strategically, these tools can help you save tens of thousands of dollars while reducing the financial burden of your first real estate purchase.

What Is the HBP?

The Home Buyers’ Plan (HBP) allows eligible first-time buyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) tax-free to buy or build a qualifying home.

Key Features:

  • Maximum withdrawal: $60,000 per person (increased from $35,000 in 2024)
  • No tax withheld at the time of withdrawal
  • Repayment required over 15 years (roughly 1/15 annually)
  • Must qualify as a first-time buyer (or not have owned a home in the past 4 years)
  • Couples can combine their withdrawals (up to $120,000 together)

Example

If you’ve saved $40,000 in your RRSP, you can withdraw it tax-free for your down payment and repay it gradually starting the second year after withdrawal.

What Is the FHSA?

The First Home Savings Account (FHSA) is a new registered account introduced in 2023 that combines the benefits of an RRSP and a TFSA—making it one of the most tax-advantaged savings vehicles available for first-time homebuyers.

Key Features:

  • Contributions are tax-deductible, like an RRSP (up to $8,000 per year)
  • Tax-free growth, like a TFSA
  • Tax-free withdrawals when used to buy a first home
  • Lifetime contribution limit: $40,000
  • Must use the account within 15 years of opening it
This account allows you to lower your taxable income, grow your savings tax-free, and withdraw the funds without paying tax when it’s time to buy.

It’s the only account that offers a triple tax benefit: deduction in, tax-free growth, and tax-free withdrawal.

Why Use These Programs?

1. Boost Your Down Payment Faster

Instead of saving in a regular account, you benefit from tax-sheltered returns, helping you grow your funds more quickly and effectively.

2. Reduce Your Tax Bill

Both the HBP and FHSA provide tax deductions that can lead to significant income tax refunds—which you can reinvest into your savings.

3. Save Up to $100,000+ as a Couple

Two partners could each contribute and withdraw:
  • $60,000 from RRSPs via HBP
  • $40,000 from FHSAs
    Together, that’s a potential $200,000 in tax-free capital toward a home purchase.

4. Lower Your Mortgage Amount

A larger down payment means you’ll borrow less, make lower monthly payments, and potentially avoid mortgage loan insurance if you reach a 20% down payment.

Can You Combine the HBP and FHSA?

Yes! You can absolutely combine both programs, as long as you meet the eligibility criteria for each. This strategy allows you to maximize your tax-free funding power while preserving your retirement savings and investment goals.

Combined Example:

  • $30,000 withdrawn from your RRSP via HBP
  • $25,000 saved in your FHSA and withdrawn tax-free
→ You now have $55,000 for your down payment, tax-free.

Conditions to Keep in Mind

The home must qualify as a principal residence in Canada

You must meet the definition of a first-time buyer

The FHSA must be opened and funded before purchasing the property

HBP withdrawals must be repaid within 15 years or they’ll be added to your taxable income

In Conclusion

The HBP and FHSA are two of the most powerful financial tools available to help first-time buyers enter the housing market. When used strategically, they allow you to build a larger down payment faster, save on taxes, and lower the total cost of your mortgage. For anyone planning to buy their first home in Canada, understanding and using these programs is essential.