How to Build a Down Payment Using the FHSA and RRSP Together
How to Build a Down Payment Using the FHSA and RRSP Together
For many young families and first-time home buyers, saving for a down payment can feel overwhelming. Home prices remain high, and everyday expenses often compete with savings goals.
The good news is that Canadians now have access to two powerful programs that can work together to help build a down payment faster: the First Home Savings Account (FHSA) and the Home Buyers' Plan (HBP) through your RRSP.
When used properly, these strategies can create significant tax savings while helping you accumulate funds for your first home.
The First Home Savings Account (FHSA)
The FHSA was introduced specifically to help first-time home buyers save for a home.
The FHSA offers the best features of both an RRSP and a TFSA:
• Contributions are tax deductible, similar to an RRSP
• Investments grow tax sheltered
• Qualifying withdrawals for a first home are completely tax free
Eligible Canadians can contribute up to $8,000 per year, with a lifetime contribution limit of $40,000.
Unlike an RRSP, money withdrawn from an FHSA to purchase a qualifying first home never needs to be repaid.
For many first-time buyers, the FHSA should be the first account considered when saving for a home purchase.
The RRSP Home Buyers' Plan (HBP)
The Home Buyers' Plan allows qualifying first-time home buyers to withdraw funds from their RRSP to help purchase a home.
Under current rules, individuals can withdraw up to $60,000 from their RRSP tax free through the HBP.
A couple purchasing together could potentially access up to $120,000 if both qualify.
Unlike the FHSA, funds withdrawn through the HBP must eventually be repaid to the RRSP.
Current rules provide a repayment grace period before annual repayments begin. Once repayments start, the amount withdrawn is generally repaid over 15 years. Any required repayment that is not made is added back to taxable income for that year.
Why Use Both Strategies?
Many buyers mistakenly believe they must choose between the FHSA and RRSP.
In reality, many first-time buyers can use both.
This creates three major benefits:
- Tax deductions on FHSA contributions
- Tax deductions on RRSP contributions
- Tax-free withdrawals when it comes time to purchase a home
In some cases, the tax refunds generated from contributions can be reinvested to further accelerate savings growth.
A Real-Life Example
Consider a young Ontario couple earning approximately $80,000 each per year.
Each spouse contributes:
Account | Annual Contribution |
FHSA | $8,000 |
RRSP | $5,000 |
Total Per Person | $13,000 |
Combined household contributions:
Account | Combined Contribution |
FHSA | $16,000 |
RRSP | $10,000 |
Total Annual Savings | $26,000 |
Assuming a combined marginal tax rate of approximately 30%, those contributions could generate annual tax refunds of roughly:
$26,000 × 30% = $7,800
If those tax refunds are also saved and invested, the couple could potentially accumulate over $100,000 toward a down payment in just a few years, depending on investment returns and contribution levels.
When they are ready to buy:
• FHSA funds can be withdrawn completely tax free
• Up to $60,000 each can be withdrawn from RRSPs through the Home Buyers' Plan
• The FHSA withdrawals never need to be repaid
• HBP withdrawals are repaid gradually over time
What Happens After You Buy?
Many people stop contributing once they purchase a home, but that can be a missed opportunity.
RRSP contributions continue to provide valuable tax deductions each year and help build retirement savings.
As HBP repayments begin, homeowners can continue rebuilding their RRSP while benefiting from ongoing tax-deferred growth.
The result is a strategy that not only helps purchase a home, but also encourages long-term wealth accumulation.
Final Thoughts
For many first-time home buyers, the FHSA and RRSP Home Buyers' Plan are two of the most valuable wealth-building tools available.
Used together, they can help accelerate your down payment savings, reduce taxes, and make home ownership more achievable.
Every situation is different. The ideal contribution strategy depends on your income, tax bracket, timeline to purchase, and overall financial goals.
If you're planning to buy your first home and want to understand how much these strategies could help you save, contact Brewitt Financial. We'd be happy to help you build a personalized roadmap to home ownership.