How to Save $200,000 For a Down Payment in Canada (FHSA, RRSP HBP)

With Canada’s sky-high home prices, every bit of help counts. Saving $200,000 for a down payment might seem impossible, but by combining the FHSA and RRSP, it’s within reach—and best of all, it’s tax-free! Let me show you how to maximize your savings and make that dream home a reality.

The FHSA (First Home Savings Account)

Let’s start with the FHSA, also known as the First Home Savings Account, which is a fantastic new tool for first-time homebuyers. The FHSA allows you to contribute up to $8,000 per year, with a lifetime maximum contribution of $40,000. The best part? These contributions are tax-deductible, just like your RRSP, giving you a nice break on your taxes every year you contribute.

Now, if you’re buying a home with a spouse, things get even better. You can double up on the savings, combining both your FHSAs to reach a total of $80,000. That’s a huge boost towards your home down payment—tax-free.

Here’s a Pro Tip: If someone else, like a spouse, earns more income and wants to contribute to your FHSA, the contribution is treated as if you made it. This means the tax benefits, such as deductions and tax-free growth, apply to you, the FHSA holder. The person contributing has no tax obligations, and qualifying withdrawals for a home purchase remain tax-free for you.

The key benefit of the FHSA is that when it’s time to withdraw the money for a home, you won’t pay a dime in taxes. This means every dollar you save is going straight towards your future home without any repayment headaches like the HBP. It’s a win-win for homebuyers who want to plan ahead.

RRSP and Home Buyers’ Plan (HBP)

​​Let’s dive into the RRSP, a long-time favourite for retirement savings in Canada. With an RRSP, you can contribute up to 18% of your income annually (or a max of $31,560 in 2024), and those contributions are tax-deductible, reducing your taxable income in the year you contribute. Plus, the RRSP offers tax-deferred growth, meaning you won’t pay taxes on your investments until you withdraw them in retirement.

But here’s where it gets exciting for homebuyers: the Home Buyers’ Plan (HBP) now allows you to withdraw up to $60,000 from your RRSP tax-free to put toward your first home. If you’re buying with a spouse, that doubles to $120,000. However, unlike the FHSA, you’ll need to repay the HBP over 15 years, starting five years after the withdrawal. Miss a repayment, and that amount gets added to your taxable income for the year, potentially increasing your tax burden.

Now, let’s take Ross and Rachel’s story. They’ve been saving for years and want to buy their first home together. Between the two of them, they maxed out their FHSAs, contributing $40,000 each, totaling $80,000 in tax-free savings. 

They also tapped into their RRSPs through the HBP, withdrawing $60,000 each, for a combined $120,000. By combining the FHSA and HBP, Ross and Rachel now have $200,000 saved for their down payment—tax-free. Not only do they get to use all those savings to secure their dream home, but they’ve also maximized tax benefits along the way. Their smart planning means they’re able to enter the housing market sooner, with less financial stress hanging over them.

And even if you don’t have a partner to save with, you can still use this strategy to save up to $100,000 to put towards your house!

Think of your savings tools—FHSA, RRSP—as puzzle pieces. Individually, they help, but together, they can help complete the picture of homeownership. Combining their tax-free benefits, like the FHSA’s down payment and RRSP’s Home Buyers’ Plan, creates a clear, faster path to owning your dream home.

Growth Potential of FHSA Over 15 Years

Let’s talk about how the FHSA can grow over time and help build serious wealth for your down payment. If you contribute the maximum of $8,000/year for 5 years, you’ll reach the lifetime contribution limit of $40,000. Assuming a 6% annual return, your account could grow to about $45,096 by the end of those 5 years.

Now, let’s say you’re not ready to buy a house just yet. If you leave that $45,096 in your FHSA for another 10 years at the same 6% return, it could grow to around $80,760—doubling your original contribution. And remember, this growth is completely tax-free as long as it’s used to buy a home.

Now, let’s look at Ross and Rachel again. Both contributed the maximum $8,000/year to their FHSAs for 5 years, so they’ve saved $80,000 between them. With a 6% return over the next 10 years, their combined FHSA balance could grow to over $160,000.

But here’s where it gets even better: Ross and Rachel also have $60,000 each in their RRSPs, which they can withdraw tax-free through the Home Buyers’ Plan (HBP). By combining the $160,000 from their FHSAs and the $120,000 from their HBP withdrawals, Ross and Rachel would have a massive $280,000 available for their down payment—tax-free. This strategy gives them a huge leg up in the housing market, turning their smart financial planning into a real advantage when it comes to securing their dream home.

If you’re not sure which one you should save in first the FHSA or RRSP, I go over in another video on this channel about that very topic, so check it out!

Canadian Housing Market Reality Check

Let’s face it—the Canadian housing market has become a serious challenge for many first-time homebuyers. With skyrocketing prices, especially in major cities, it feels like owning a home is further out of reach than ever. I

n cities like Toronto and Vancouver, home prices have soared, making it tough to save enough for a decent down payment, let alone afford the mortgage payments. Even in more affordable areas, the rapid rise in prices is putting pressure on buyers to come up with larger down payments just to compete.

Average Home Prices by Region and Down Payment Comparison 

Source: (Q3 2024, CREA sourced data) 

This table shows how a $200,000 down payment can make a big difference, depending on where you’re looking to buy. In cities like Montreal and Calgary, where home prices are more affordable, that amount covers about 32% of the total cost, giving homebuyers a significant leg up. 

But in higher-priced markets like Toronto and Vancouver, that same $200,000 covers only around 16-19%, meaning buyers in these cities will need to take on much larger mortgages to make up the difference.

This comparison highlights how crucial it is to use tax-free savings tools like the FHSA and the Home Buyers’ Plan (HBP). For buyers in more expensive cities, every bit of savings helps to offset the larger mortgage burden, while in more affordable cities, a larger down payment can make it easier to enter the market and secure more favourable mortgage terms.

I recently spoke with a real estate agent who’s seen countless couples struggle with affordability. He is very excited about the new FHSA and the increased $60,000 limit for the Home Buyers’ Plan. He said that once couples learned how to combine the FHSA and RRSP, they can see how homeownership can become achievable much faster. The right strategy turned what once seemed impossible into a real opportunity.

The Tax Advantage

When saving for a $200,000 down payment, the tax advantages of accounts like the FHSA and RRSP can make a massive difference in how much you actually need to save.

Without Tax Benefits: If you’re saving $200,000 without any tax-free accounts, you need to account for taxes on your income. With a 30% tax rate, you would need to earn over $285,000 just to have $200,000 left after taxes. That’s $85,000 more you’d need to save to reach your down payment goal.

Using FHSA and RRSP: Now, if you use the FHSA and RRSP, your contributions are tax-deductible, meaning you don’t pay taxes on that income. This allows you to save the full $200,000 without paying a penny in taxes on it. By using these accounts, you don’t need to save more than $200,000 because every dollar you contribute works directly towards your home purchase, drastically cutting down on how much you need to save overall.

If this helped, see our services for tailored resources that’ll make your homeownership journey smoother with expert planning from Blueprint Financial.