Key takeaway: The First Home Savings Account (FHSA) offers a tax deduction on contributions plus tax-free withdrawals, while the RRSP Home Buyers’ Plan (HBP) requires repayment over 15 years. For most first-time buyers, the FHSA delivers greater net savings because you never repay the withdrawn amount, but combining both strategies can maximize your down payment if you need more than the FHSA’s $40,000 lifetime limit.

Canadian first-time home buyers face a critical choice: contribute to the new First Home Savings Account or rely on the established RRSP Home Buyers’ Plan. Both offer tax advantages, but the mechanics and long-term costs differ sharply. Choosing the wrong strategy can leave thousands of dollars on the table or saddle you with a mandatory repayment obligation that reduces your future retirement contributions.

How the Two Programs Work

The FHSA, introduced in 2023, combines the best features of an RRSP and a TFSA for a single purpose. You can contribute up to $8,000 per year to a maximum lifetime limit of $40,000. Contributions are tax-deductible (lowering your taxable income in the year you contribute), and when you withdraw the funds to buy your first qualifying home, the entire amount comes out tax-free. According to the Canada Revenue Agency, you face no repayment requirement and no tax on the withdrawal (CRA, 2026).

The RRSP Home Buyers’ Plan lets you withdraw up to $35,000 from your existing RRSP to buy or build a qualifying home. You receive the funds tax-free at withdrawal, but the program requires you to repay the full amount to your RRSP over 15 years (starting the second year after withdrawal). Each year you must repay at least one-fifteenth of the amount (roughly 6.67 percent annually). If you miss a repayment, the shortfall is added to your taxable income for that year.

The Financial Consumer Agency of Canada notes that while both programs reduce the upfront cash barrier to homeownership, the FHSA offers a permanent benefit because withdrawn funds never return to the account (FCAC, 2026). The HBP, by contrast, is effectively an interest-free loan from your future self.

The Tax Math Behind the Comparison

The calculator compares the net benefit of each approach by tracking three variables: your marginal tax rate, your contribution amount, and your time horizon.

FHSA benefit: For every dollar you contribute, you receive an immediate tax deduction equal to your marginal tax rate. When you withdraw the funds, you pay zero tax. If you contribute $8,000 annually at a 30 percent marginal rate, you receive a $2,400 tax refund each year and owe nothing on withdrawal. Over five years (the maximum contribution period to reach the $40,000 cap), the total tax saved is $12,000, and you withdraw $40,000 plus any investment growth, all tax-free.

HBP benefit: You also receive the funds tax-free at withdrawal, but you must repay the amount from after-tax income. If you withdraw $35,000, you must contribute $2,333 per year for 15 years to meet the repayment schedule. Those repayment contributions are not new RRSP room; they simply restore what you borrowed. If you had contributed that $2,333 annually to a fresh RRSP account instead, you would have received a tax deduction. The opportunity cost is the forgone deduction on 15 years of repayments.

Foundational finance texts such as Principles of Finance explain that tax-deferred growth is valuable, but a program offering both a deduction and tax-free withdrawal (the FHSA) delivers a higher effective return than a loan structure requiring repayment from after-tax dollars (the HBP).

Read also: How to Use the First Home Savings Account (FHSA) in Canada

A Worked Example

Consider Maya, a 28-year-old software developer in Ontario earning $85,000 per year (marginal tax rate approximately 31.5 percent). She plans to buy her first home in five years and can save $8,000 annually.

Strategy A (FHSA only): Maya contributes $8,000 per year for five years. She receives a tax refund of $2,520 annually ($8,000 x 0.315). After five years, she has contributed $40,000 and received $12,600 in tax refunds. Assuming a 5 percent annual return, her FHSA balance grows to approximately $44,200. She withdraws the full amount tax-free for her down payment. Net benefit: $44,200 down payment, $12,600 in tax refunds received, zero future obligation.

Strategy B (HBP only): Maya contributes $7,000 annually to her RRSP for five years, receiving the same annual tax refund of $2,205 ($7,000 x 0.315). After five years, her RRSP balance is approximately $38,700 at a 5 percent return. She withdraws $35,000 under the HBP (the maximum) and must repay $2,333 per year for 15 years. Those repayment contributions use after-tax dollars and do not generate a new deduction. The opportunity cost of the repayment obligation, measured as the lost deduction over 15 years, is approximately $11,000 in forgone tax savings (present value, discounted at 5 percent). Net benefit: $35,000 down payment, $11,025 in tax refunds received over five years, 15-year repayment burden.

Strategy C (FHSA to the cap, then HBP): Maya maxes out the FHSA ($40,000) and then uses the HBP for an additional $35,000. This approach delivers the highest down payment ($75,000) but requires managing the HBP repayment obligation. It suits buyers in expensive markets (Toronto, Vancouver) where a larger down payment avoids CMHC insurance or brings the purchase within reach.

The calculator shows that for down payments up to $40,000, the FHSA wins decisively. For larger down payments, combining both programs is optimal, but the HBP component still carries the repayment cost.

Why This Matters

Choosing between the FHSA and the HBP is not just about the down payment amount. The FHSA frees you from future repayment obligations, letting you direct your income toward mortgage payments, property expenses, or fresh RRSP contributions for retirement. The HBP locks you into a 15-year repayment schedule that competes with those same goals. Missing an HBP repayment triggers immediate tax on the shortfall, a penalty the FHSA does not impose.

The calculator accounts for your specific marginal tax rate (which varies by province and income), your contribution capacity, your time horizon, and the investment return you expect inside the account. It reveals the dollar difference between the two strategies, adjusted for the present value of future repayment obligations, so you can make an informed choice based on your actual financial situation rather than a generic rule of thumb.

Disclaimer: This article provides general educational information about the FHSA and RRSP Home Buyers’ Plan and does not constitute personalized financial, tax, or investment advice. Contribution limits, tax rates, and program rules are current as of August 2026; confirm current limits and eligibility on the CRA website before acting. Tax outcomes depend on your province, income, and personal circumstances. Consult a Certified Financial Planner (CFP) or Chartered Professional Accountant (CPA) for advice tailored to your situation.