For anyone trying to buy their first home in Ontario, the biggest challenge is almost always the same: saving up for the down payment. With today’s home prices, building a large enough nest egg can feel like a monumental task.

Fortunately, the Canadian government has created two powerful, tax-sheltered programs specifically designed to help you reach your goal faster: the long-standing RRSP Home Buyers' Plan (HBP) and the new First Home Savings Account (FHSA).

But which one should you use? The answer, which can save you thousands of dollars, is not to choose between them. As mortgage brokers, we advise our clients that the optimal strategy is to use them together. This guide will break down both accounts, compare their features, and show you the exact step-by-step strategy to combine their power for the largest possible down payment.

The RRSP Home Buyers' Plan (HBP) Explained

The Home Buyers' Plan has been a cornerstone for Canadian first-time buyers for decades. It's a reliable program that allows you to tap into your retirement savings to fund your down payment.

How It Works: A Tax-Free Loan From Yourself

The core mechanic of the HBP is simple: it allows you to withdraw up to $60,000 per person from your Registered Retirement Savings Plan (RRSP) to use towards buying or building a qualifying home. For a couple, that’s a combined total of up to $120,000.

The key benefit is that this withdrawal is completely tax-free. Normally, any money you take out of your RRSP is taxed as income. The HBP lets you bypass this tax, giving you access to your funds when you need them most. It’s important to note that any funds you plan to use for the HBP must have been in your RRSP for at least 90 days before you can withdraw them.

The Repayment Rules

The critical thing to remember about the HBP is that it is essentially a loan you are taking from your future self. You are required to pay the withdrawn funds back into your RRSP over a 15-year period.

The repayment period starts the second year after the year you made the withdrawal. Each year, you must repay at least 1/15th of the total amount you borrowed. If you fail to make the minimum repayment in any given year, that amount is added to your taxable income for that year.

The Pros and Cons of the HBP

Pros: It allows you to access a potentially large pool of money you've already saved, giving your down payment a significant boost.

Cons: It creates a repayment obligation that lasts for 15 years. While you are repaying the loan, that money is not growing tax-sheltered within your RRSP, which represents a long-term opportunity cost.

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The First Home Savings Account (FHSA) Explained

Introduced recently, the FHSA is arguably the most powerful savings account ever created for first-time home buyers in Canada. It combines the best features of both an RRSP and a Tax-Free Savings Account (TFSA).

Canada's New "Super-Account" for Buyers

Here’s what makes the FHSA so powerful:

Contributions are tax-deductible, just like an RRSP. When you contribute money to your FHSA, you get to deduct that amount from your taxable income, likely resulting in a tax refund.

Withdrawals are completely tax-free, just like a TFSA. When you take money out to buy your first home, you pay zero tax on the contributions and any investment growth.

This "tax-in, tax-out" advantage is a game-changer. It's a combination of benefits that no other account offers.

Contribution and Withdrawal Rules

The FHSA has clear limits. You can contribute up to $8,000 per year, with a total lifetime contribution limit of $40,000. If you don't contribute the full $8,000 in one year, the unused room carries forward to the next year (up to a maximum of $8,000).

The most significant rule is about withdrawals: when you use the funds for a qualifying home purchase, the money is yours to keep. It never needs to be repaid.

The Pros and Cons of the FHSA

Pros: Unbeatable tax advantages. There is absolutely no downside from a tax perspective. The lack of a repayment obligation provides huge financial flexibility.

Cons: As a newer account, you've had less time to contribute and let it grow compared to a long-standing RRSP. The lifetime limit of $40,000 is also lower than the HBP's $60,000 withdrawal limit.

Ultimate Strategy: Using Both HBP and FHSA

This brings us to the core of our professional advice. You don't have to choose. For the ultimate down payment, you can and should use both plans at the same time.

Can You Really Use Both?

Yes, absolutely. The government has explicitly designed the programs so that you can make a qualifying withdrawal from your FHSA and a qualifying withdrawal from your RRSP for the same home purchase. This is the optimal strategy for anyone seriously saving for a home.

A Step-by-Step Combination Strategy

As brokers, we advise our clients to follow a specific order of operations to maximize their savings and tax benefits:

Prioritize the FHSA: Each year, aim to contribute your first $8,000 of savings into your FHSA. This gives you the best possible tax outcome.

Contribute to Your RRSP: If you have more money to save beyond the $8,000, contribute it to your RRSP. You will still get a tax deduction for these contributions.

Withdraw from the FHSA First: When you are ready to buy your home, you will first withdraw the entire balance from your FHSA. This is your tax-free, repayment-free money.

Withdraw from the HBP Second: Next, you will access your RRSP funds by making an HBP withdrawal of up to $60,000.

Combine for a Massive Down Payment: You can now pool the funds from both accounts to make the largest possible down payment on your new home.

A Real-World Ontario Example

Let's look at Maya, a young professional in Toronto earning $80,000 a year. Her goal is to save for a down payment on a condo. She can save $16,000 per year.

Year 1: Maya puts $8,000 into her FHSA and $8,000 into her RRSP. She gets a tax deduction on the full $16,000, resulting in a significant tax refund.

Year 2 & 3: She does the exact same thing.

After 3 years: Maya has contributed $24,000 to her FHSA and $24,000 to her RRSP. Let's assume some modest investment growth, and her FHSA is now worth $26,000 and her RRSP has a balance of $26,000.

Time to Buy: She can withdraw the full $26,000 from her FHSA (tax-free, no repayment) plus the full $26,000 from her RRSP via the HBP. She now has a $52,000 down payment, far more than she could have saved in a regular bank account.

A Broker's Perspective on Your Down Payment

Once you've saved your money, how do lenders see it?

How Lenders View These Funds

All Canadian mortgage lenders, from the big banks to credit unions and monolines, fully recognize and accept funds from both the HBP and FHSA as legitimate sources for a down payment. These funds are considered your own savings and are not counted as debt in your qualification ratios. A clear paper trail showing the withdrawals from these registered accounts is all that's needed.

Why a Larger Down Payment Matters

Using these tools to get the largest down payment possible has two huge benefits that save you money for years to come:

Avoiding Mortgage Default Insurance: If your down payment is less than 20% of the home's purchase price, you are required to pay for mortgage default insurance from CMHC, Sagen, or Canada Guaranty. This insurance premium can add thousands, or even tens of thousands, of dollars to your mortgage total. Pushing past that 20% threshold with a larger down payment means you save all that money.

Lower Monthly Payments: A larger down payment means a smaller loan. A smaller loan means a lower monthly mortgage payment, which improves your cash flow. It also means you pay significantly less interest over the life of the mortgage, building equity in your home faster.

FHSA vs. HBP: A First-Time Buyer's Guide (Ontario)

Saving for a down payment in Ontario is a challenge, but you don't have to do it alone. The government has provided two incredibly powerful tools in the FHSA and the HBP. While each is good on its own, the optimal strategy for any serious first-time buyer is to combine their strengths. By prioritizing your FHSA and supplementing with your RRSP, you can build your down payment faster and more tax-efficiently than ever before.

Planning for your down payment is the very first step in the home-buying journey. Contact our brokerage today, and we can help you create a personalized savings and mortgage plan that turns your dream of homeownership into a reality.

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