To use the HBP, you need to have a registered retirement savings plan, or RRSP. An RRSP allows you to save money in a tax-sheltered environment, and your contributions can be deducted from your taxable income.
The HBP is a program that allows you to withdraw up to $60,000 from your RRSP, tax free, for the purpose of buying your first home. You will have to start repaying the money to your RRSP between two and five years after your initial withdrawal, depending on when the withdrawal was made. The repayments can be spread over a maximum of 15 years.
The FHSA is an account where you can deposit up to $8,000 a year, to a maximum of $40,000. These contributions are also tax deductible and any return on investment is tax free. You have 15 years after opening the account to make a non-taxable withdrawal in order to buy your first home.
Note that with an FHSA, any unused contribution room can only be carried forward one year, while with an RRSP it can be carried forward indefinitely.
Together or separately, the RRSP, HBP and FHSA lend themselves to a variety of strategies. To decide which one is the best for you, talk to your advisor.
The following sources were used to prepare this video:
Government of Canada, “First Home Savings Account (FHSA)”; “The Home Buyers' Plan.”
Financial Insight, “How to use the FHSA to buy your first house.”
Ratehub, “What is the difference between the FHSA and Home Buyers' Plan?.”
Toronto Star, “You can now combine cash from your FHSA and HBP to buy that first home. Here’s how....”