FHSA vs RRSP Home Buyers’ Plan: A Detailed Comparison

Understanding the differences between the First Home Savings Account (FHSA) and the RRSP Home Buyers’ Plan (HBP) can help prospective homebuyers save plenty of money.

In a previous blog post, we compared RRSP vs TFSA. In this post, we will compare FHSA vs RRSP Home Buyers’ Plan (HBP) for the purposes of saving for your home.

Let’s examine how these two programs compare across various dimensions:

Feature	FHSA	RRSP Home Buyers’ Plan
Maximum Amount Available	$40,000 lifetime limit	$60,000 withdrawal limit (After April 16, 2024)
Annual Contribution Limit	$8,000 per year	Limited by RRSP contribution room
Tax Treatment of Deposits	Tax-deductible contributions	Tax-deductible contributions
Tax Treatment of Withdrawals	Tax-free withdrawals for home purchase	Must repay withdrawals to RRSP
Repayment Requirements	No repayment required	Must repay over 15 years
Impact on Retirement Savings	None – separate from retirement accounts	Temporarily reduces retirement savings
Unused Funds	Can be transferred to RRSP without affecting RRSP room	N/A – funds remain in RRSP
Timeline Restrictions	Must use within 15 years of opening account	Must repay within 15 years of withdrawal
Home Buyer Requirement	Must be first-time buyer when account opened	Must not have lived in a qualifying home in the past four years
Spouse/Partner Considerations	Each person needs their own account	Can use spouse’s RRSP
Multiple Home Purchases	One-time use only	Can use multiple times if repaid

Key Strategic Differences (FHSA vs RRSP HBP)

The choice between FHSA and RRSP HBP often depends on several factors:

1. Timing Flexibility
   • FHSA requires advance planning as funds must be accumulated before the purchase
   • HBP allows immediate access to existing RRSP savings
   • Combined strategy might work best for longer-term planning
2. Tax Efficiency
   • FHSA provides true tax-free withdrawals
   • HBP withdrawals must be repaid with after-tax dollars
   • FHSA effectively offers double tax benefit (deduction and tax-free withdrawal)
3. Impact on Future Savings
   • FHSA has no impact on long-term retirement savings
   • HBP temporarily reduces retirement savings and requires disciplined repayment
   • FHSA unused funds can supplement retirement savings
4. Cash Flow Considerations
   • FHSA requires no future repayment obligations
   • HBP requires annual repayments of 1/15th of withdrawn amount
   • FHSA might be better for tight post-purchase budgets

Sample Scenarios For FHSA vs RRSP HBP

Let’s examine three common scenarios to illustrate optimal uses of each program:

1. Long-term Planner (5+ years from purchase)
   Starting early allows for maximum FHSA benefit:
   • Year 1-5: Contribute $8,000 annually to FHSA ($40,000 total)
   • Tax savings: $18,000 (assuming 45% marginal rate)
   • No repayment required after home purchase
   • Total benefit: $58,000 ($40,000 + $18,000 tax savings) + growth inside FHSA
2. Near-term Buyer (1-2 years from purchase)
   HBP might be more suitable:
   • Immediate access to existing RRSP savings
   • Can withdraw up to $60,000
   • Annual repayment of $4,000 required
   • Consider starting FHSA for additional funds
3. Maximum Purchase Power Strategy
   Combining both programs:
   • Maximize FHSA: $40,000
   • Use HBP: $60,000
   • Total available: $100,000
   • Tax savings: approximately $45,000 (at 45% marginal rate)
   • Must plan for HBP repayment while maintaining RRSP contributions

Strategy For Your Purchase Timeline

The most effective approach often depends on your timeline:

5+ Years to Purchase:

1. Maximize FHSA contributions first ($8,000/year)
2. Build regular RRSP savings as backup
3. Consider TFSA for additional flexibility

2-5 Years to Purchase:

1. Split contributions between FHSA and RRSP
2. Plan to use both programs for maximum benefit
3. Maintain emergency fund in TFSA

Less than 2 Years to Purchase:

1. Focus on HBP if RRSP savings exist
2. Start FHSA if cash flow allows
3. Use TFSA for immediate accessibility

Conclusion

We hope this helps giving you a basic overview of FHSA vs RRSP HBP comparison and plan your tax-sheltered savings strategies for your home accordingly.

Still got questions? Reach out to us for help here.