FHSA vs. Home Buyers’ Plan: Pros and Cons

Buying your first home is a big deal. And a big investment. Saving for a sufficient down payment can take years of disciplined budgeting, cutting expenses, and staying focused on your financial goals. Fortunately, the Government of Canada offers two tax-advantaged programs to help first-time homebuyers achieve homeownership: the First Home Savings Account (FHSA) and the Home Buyers’ Plan (HBP). In this article, we’ll look at the FHSA with the Home Buyers’ Plan together to help you understand which one is best suited for you if you’re hoping to buy a home in the next few years.

What is the FHSA?

The First Home Savings Account, or FHSA, is a registered savings plan that allows first-time home buyers to save for a down payment on a qualifying first home tax-free. The plan was launched in 2023 to help Canadians build a sufficient down payment sooner by combining tax-deductible contributions with tax-free investment growth.

As such, eligible individuals can contribute up to $8,000 per year to the FHSA, with a $40,000 lifetime contribution limit. The program is designed for Canadian residents aged 18 and older who qualify as first-time homebuyers.

What is the Home Buyers’ Plan?

The Home Buyers’ Plan (HBP) allows Canadians to withdraw funds from their RRSPs to purchase or build a qualifying home for themselves or a specified disabled person. 

Under the plan, an individual can withdraw up to $60,000 tax-free. This means that, if both spouses have an RRSP, they can withdraw up to $120,000 for the down payment. The withdrawn funds will need to be repaid into the RRSP account over 15 years. If you fail to make the annual HBP minimum payment, the minimum amount will be added to your taxable income for the year.

Key Differences Between FHSA and HBP

Feature	FHSA	HBP
Contribution/withdrawal limit	Individuals can contribute up to $8,000 per year, with a lifetime maximum of $40,000	Can withdraw up to $60,000 per person, subject to available RRSP contribution room
Repayment requirement	No repayment required	Withdrawn amounts must be repaid within 15 years (1/15th annually)
Tax treatment	Contributions are tax-deductible Growth is tax-free Withdrawals are non-taxable	Contributions are tax‑deductible Growth is tax‑deferred Withdrawals are taxable only if not repaid within the specified time frame
Eligibility criteria	Must be a Canadian resident Must be at least 18 years old (19 in some provinces) Must be a first-time home buyer Account can remain open for up to 15 years or until age 71, whichever comes first Home purchase must close by October 1 of the year after the withdrawal	Must be a Canadian resident No minimum age requirement Must have an RRSP with enough contribution room to make the withdrawal Must be a first-time home buyer Must buy or build a qualifying home by October 1 of the year after the withdrawal

 

Pros and Cons of the FHSA

Undoubtedly, the FHSA is one of the most valuable savings tools available to first-time homebuyers; however, like any other program, it has both pros and cons.

FHSA Pros

• Double tax benefits. The First Home Savings Account comes with double tax benefits: the deposits you make can be deducted from your taxable income, and any income earned on the FHSA is tax-free. The funds withdrawal is not taxable either.
• No repayment required. The FHSA has no repayment obligation, meaning that the funds withdrawn from your FHSA for the purchase of your home don’t need to be redeposited in the future.

• Can hold a mix of investments. With the FHSA, you can invest in a variety of investments, including exchange-traded or mutual funds, government or corporate bonds, individual stocks, term deposits, and more.

FHSA Cons

• Limited contribution room. While the lifetime contribution cap with the FHSA is $40,000, you are limited to contributing no more than $8,000 per year. This means that it may take several years to fully fund the account and accumulate a substantial down payment.

• Limited qualification criteria. The First Home Savings Account is only available to Canadian residents who are legal adults under the age of 71 and only to those who qualify as “first-time homebuyers.”

• Limited lifespan. Another disadvantage of the FHSA is its 15-year lifespan. If you don’t purchase a home within this time frame, the account will be automatically closed, and the funds can be transferred to your RRSP or RRIF tax-free.

Pros and Cons of the HBP

The Home Buyers’ Plan also comes with its own pros and cons that are worth considering when weighing these two options.

HBP Pros

• Higher upfront withdrawal limit. Individuals can withdraw up to $60,000 tax-free. For couples, that’s up to $120,000 combined if both have RRSPs.

• Useful if the RRSP room is already built up. The HBP lets you leverage your existing RRSP savings for a home purchase without having to wait or open a new account. 

• Flexible for those who have limited access to the new FHSA room. If you are not eligible for the FHSA, or if you’ve already maxed out your FHSA contributions, the HBP offers an alternative path to access tax-advantaged funds for a first home.

HBP Cons

• Repayment is mandatory. You must repay the funds over 15 years; otherwise, your withdrawal will become taxable.

• Limited qualification criteria. The HBP is only available to first-time homebuyers and requires you to have sufficient RRSP contribution room.

• Withdrawn funds lose RRSP growth potential unless repaid. The HBP withdrawal reduces your RRSP balance temporarily. If not repaid, the withdrawn amount permanently reduces your retirement savings and associated growth.

Can You Use Both Together?

While choosing between the FHSA vs. the Home Buyer’s Plan can be tricky, the great news is that you can use both of these programs together to boost your total tax-advantaged savings. By combining them, a first-time home buyer could access up to $100,000 tax-free—$40,000 from the FHSA and $60,000 from the HBP (per person). This strategy is ideal for high savers or couples who want to maximize their homebuying power.

Final Thoughts: Which Option is Better for You?

Undoubtedly, both the FHSA and the Home Buyer’s Plan can help Canadians take practical steps toward homeownership by reducing the financial burden of a down payment. 

As a rule of thumb, the FHSA is ideal for those early in their saving journey with years to grow funds. The HBP is recommended for those who already have built-up RRSPs or are planning to purchase soon. Finally, the combination of the First Home Savings Account and the Home Buyers’ Plan is beneficial for those with longer timelines and higher savings goals.

If you are still not sure whether the FHSA or the Home Buyers’ Plan is right for you, don’t hesitate to reach out to me. I’m happy to guide you through your options and help you make an informed financial decision.