FHSA vs RRSP Home Buyers Plan — Which Should You Use?

If you're saving for your first home in Canada, two accounts give you powerful tax advantages — the First Home Savings Account (FHSA) and the RRSP Home Buyers' Plan (HBP). Understanding the difference between them could save you thousands of dollars and months of saving time.

The Short Answer

For most first-time buyers, the FHSA is the better account — and you should maximize it before touching your RRSP for a home purchase. The FHSA offers a tax deduction on contributions and completely tax-free withdrawals with no repayment obligation. The RRSP HBP requires you to repay what you withdraw over 15 years, or it gets added back to your taxable income.

That said, the smartest strategy for many buyers is to use both — the FHSA first, then the RRSP HBP to top up if needed.

What Is the FHSA?

The First Home Savings Account was introduced by the federal government in 2023. It combines the best features of an RRSP and a TFSA specifically for first-time homebuyers.

• Annual contribution limit: $8,000 per year
• Lifetime contribution limit: $40,000
• Tax deduction: Yes — contributions reduce your taxable income, just like an RRSP
• Withdrawals for home purchase: Completely tax-free — no repayment required
• Investment growth: Grows tax-free inside the account
• Unused room carries forward: Up to $8,000 of unused room carries to the next year
• Account lifespan: Must be used within 15 years of opening, or by age 71
• If you don't buy: Transfer to RRSP tax-free, no repayment required

What Is the RRSP Home Buyers' Plan?

The RRSP Home Buyers' Plan (HBP) has existed since 1992 and allows first-time buyers to withdraw from their RRSP for a home purchase without paying tax immediately — as long as you repay the funds over time.

• Maximum withdrawal: $35,000 per person ($70,000 per couple)
• Tax on withdrawal: None at time of withdrawal — but repayment is required
• Repayment period: 15 years, starting 2 years after withdrawal
• If you don't repay: The outstanding balance is added to your income in that tax year and taxed at your marginal rate
• RRSP seasoning rule: Funds must have been in the RRSP for at least 90 days before withdrawal
• Contribution room: Repayments restore your RRSP contribution room

Head-to-Head Comparison

Why the FHSA Wins for Most Buyers

The fundamental difference comes down to one thing: the FHSA withdrawal is genuinely free money — you get the tax deduction on the way in and pay nothing on the way out. The RRSP HBP is essentially an interest-free loan from your own retirement savings that you must pay back.

Consider the real cost of the RRSP HBP. If you withdraw $35,000 and fail to make your annual repayment of roughly $2,333 in a given year, that amount is added to your income and taxed at your marginal rate. For someone in the 33% tax bracket, that's $770 in unexpected tax. Over 15 years of missed payments, the compounding cost adds up significantly.

There's also an opportunity cost. Every dollar you repay to your RRSP is a dollar that isn't going toward your mortgage, your TFSA, or other investments. The FHSA has no such anchor on your future cash flow. Don't forget to factor in closing costs when setting your down payment target — they typically add $8,000–$25,000 on top.

When the RRSP HBP Still Makes Sense

The RRSP HBP isn't obsolete — it still has a meaningful role in a first-time buyer's strategy, particularly in these situations:

You Already Have RRSP Savings

If you've been contributing to your RRSP for years and have a significant balance, the HBP lets you access those savings for your down payment without waiting to accumulate FHSA room. You can't retroactively open an FHSA and deposit years of savings — you're limited to $8,000 per year from the date you open the account.

You Need More Than $40,000

The FHSA is capped at $40,000 lifetime. For buyers in the GTA where down payments on a typical home often exceed $100,000, using both accounts makes sense. A couple can access $80,000 from two FHSAs plus $70,000 from two RRSP HBPs — a combined $150,000 in down payment savings with significant tax advantages.

Your Timeline Is Short

If you're planning to buy within 1-2 years and haven't opened an FHSA yet, your ability to accumulate FHSA room is limited. You can only contribute $8,000 in year one and $8,000 in year two ($16,000 total) before purchasing. In this scenario, your existing RRSP savings via the HBP may be the more practical source of funds.

The Optimal Strategy — Use Both

For most first-time buyers with a medium-term horizon of 3-5 years, the best approach is straightforward:

1. Open your FHSA immediately — even if you can't contribute right away. The annual room accumulates from the date you open the account, not the date you contribute. Opening it today means you can contribute $16,000 next year (current year + carryforward).
2. Maximize your FHSA first — contribute the full $8,000 per year and invest it in a diversified portfolio. Take the tax deduction.
3. Continue RRSP contributions for the ongoing tax deduction and retirement savings — but keep the HBP as a backup source rather than your primary plan.
4. Use the FHSA first at purchase — withdraw the full FHSA balance tax-free with no repayment obligation.
5. Top up with RRSP HBP if needed — if your FHSA balance isn't enough for your target down payment, use the HBP to supplement, up to $35,000 per person.

What to Invest Inside Your FHSA

The FHSA can hold the same investments as a TFSA or RRSP — stocks, ETFs, bonds, GICs, and mutual funds. The right investment mix depends on your time horizon:

FHSA Rules You Need to Know

You can only use it once. The FHSA can only be used for one qualifying home purchase. Once you've made a qualifying withdrawal, the account must be closed within a year.

The 90-day rule applies. Just like RRSP HBP funds, FHSA funds must have been in the account for at least 90 days before you make a qualifying withdrawal.

You must be a first-time buyer at the time of withdrawal. If you've owned a home at any point in the preceding four years, you don't qualify — even if you contributed to the FHSA during that time.

Contributions can be deducted in future years. Unlike an RRSP where you choose when to claim the deduction, FHSA contributions can be carried forward indefinitely. If you're in a lower tax bracket now and expect a higher income in future years, you can delay claiming the deduction to maximize its value.

Key Takeaways

• The FHSA is generally the better account — tax deduction on contributions, tax-free withdrawals, no repayment required
• The RRSP HBP is an interest-free loan from your own savings — you must repay $35,000 over 15 years or face tax
• Open your FHSA immediately — contribution room accumulates from the date of opening, not the date of contribution
• A couple using both accounts can access up to $150,000 ($80K FHSA + $70K HBP) in tax-advantaged down payment savings
• Invest based on your timeline — GICs for 1-2 years, balanced ETF for 3-5 years, growth ETF for 5+ years
• FHSA funds must be in the account 90+ days before withdrawal, and you must be a first-time buyer at withdrawal
• Always consult a financial advisor for advice specific to your tax situation