HBP vs. FHSA: What’s the Difference?

Becoming a first-time homeowner is a monumental step for anyone. Saving early can help ease the financial burden and make sure you’re ready for your dream home. The Canadian Government has 2 tools to help you in this endeavour: the home buyers’ plan (HBP) and the first home savings account (FHSA).

The difference between an HBP and an FHSA is their contribution limit, withdrawal amount, and repayment. These differences can have massive repercussions when planning your future, and a trusted advisor can help you maximize the benefits of these valuable tools. 

What Is the Home Buyers’ Plan?

The home buyers’ plan (HBP) is a classic tool for first-time homebuyers. The HBP allows you to use your RRSP for a down payment on your first home, withdrawing up to $35,000 tax-free.

This limit is per person, meaning you and your spouse or common-law partner can combine your limits up to $70,000 to build or buy an eligible home.

The borrowed funds must be repaid back into your RRSP over a 15-year period, with the repayment starting in the second year after the year in which you first withdrew the funds. That means if you make your first withdrawal in 2024, you must begin repaying the funds in 2026. At least 1/15th of the total withdrawal is due every year.

However, if you fail to make a repayment for a year, any shortfall will be included in your taxable income for that year, eliminating the tax-deferred benefit.

Am I Eligible?

To be eligible for the HBP, you must meet the following requirements:

• Be considered a first-time home buyer or participate with respect to a disabled person related to you.
• Be a resident of Canada from the time of your first withdrawal to when you buy or build the qualifying home.
• Have a written agreement to buy or build a home for yourself or the specified person with a disability.
• You or the specified person with a disability intend to occupy the home as a principal residence within 1 year of purchase or building it.

What Is the First Home Savings Account?

The Government of Canada launched the first home savings account (FHSA) in 2023. It’s designed for those looking for a more structured approach to saving for their first home, combining the tax-free growth of a TFSA with tax-deductible contributions similar to an RRSP.

Unlike the HBP, the FHSA isn’t drawn from an existing retirement account but is a dedicated savings account specifically for your home purchase.

Contributions to your FHSA are limited to $8,000 per year, up to a lifetime contribution of $40,000. Since an FHSA acts as a savings account, you aren’t borrowing money, so you don’t have to repay any withdrawals. However, if the money isn’t used to buy a qualifying home, it will become a taxable withdrawal and must be claimed as income.

Eligibility to Open an FHSA

The eligibility requirements to open an FHSA are reasonably straightforward. To qualify, you must meet all of the following conditions:

• You must be a resident of Canada.
• You must be 18 years of age (or 19 in provinces where that is the legal age).
• You must be 71 or younger on December 31st of the year you open your FHSA.

You also have to meet the requirements for a first-time home buyer. That means you must not have owned and lived in a qualifying home as a principal place of residence in this or the previous 4 calendar years.

Additionally, you have to meet one of these requirements:

• You didn’t live in a qualifying home, as described above, that was owned by a spouse or common-law partner.
• Or, you don’t have a spouse or common-law partner when you open the account.

Comparing HBP & FHSA 

The HBP can offer immediate access to larger sums of money you’ve already been saving, often crucial in a volatile housing market, while the FHSA provides a more structured savings platform to plan ahead.

Advantages of HBP

The HBP approach is straightforward for those with RRSPs and provides a significant amount of money upfront. For those with a substantial RRSP balance, this can be a very efficient tool for home purchases, as there’s no waiting period to withdraw the money.

Advantages of FHSA

The FHSA is an advantageous tax-savvy account for long-term savers. With the benefits of both TFSAs and RRSPs, it’s ideal for those planning ahead and looking to boost their savings.

Can You Use HBP & FHSA Together?

Though originally, you weren’t allowed to combine the HBP and FHSA, the government changed its proposal before the FHSAs were launched. You can now use both the HBP and FHSA to boost your down payment as long as your intended purchase meets both plans’ requirements.

This tandem approach can offer a balance between leveraging your current investments and applying additional savings, especially if you’ve already maximized your RRSP contributions.

Keep in mind that while you don’t have to repay the FHSA, you are still obligated to pay your RRSP withdrawal in 15 years.

Make Your Dream Home a Reality

The financial options available to first-time homebuyers are as diverse as the homes they aspire to own. By understanding the subtle intricacies of tools such as the HBP and FHSA, you may be better equipped to make informed decisions that align with your long-term financial goals.

To explore the breadth of your options, set a meeting with our seasoned advisors at Qopia Financial. We’re ready to equip you with the tools, resources, and support you need to set out on your first-time homebuyers’ journey. Don’t leave it to chance; take command of your financial future today.