Down payment sources: FHSA, RRSP and TFSA in a buy vs rent plan

The main registered accounts

First Home Savings Account (FHSA). The annual contribution limit is $8,000 and the lifetime limit is $40,000. Contributions are deductible, and qualifying withdrawals for a first home are tax-free. Unused room can be carried forward in a limited way, up to $8,000. Confirm the current rules with the CRA.

RRSP Home Buyers’ Plan (HBP). A first-time buyer can withdraw up to $60,000 per person from an RRSP and repay it over time. Confirm eligibility and the repayment schedule with the CRA.

TFSA and other savings. Growth inside a Tax-Free Savings Account is tax-free, and the money can be withdrawn for any purpose. Savings in these accounts compound tax-free or tax-deferred.

Home Buyers’ Amount. This is a federal non-refundable credit worth up to $1,500 for eligible first-time buyers. It is a small offset after the purchase, not a source of down payment funds.

How the numbers add up

Because the limits are stated per person, couples can combine them. Using the figures above, two eligible first-time buyers could in principle reach a lifetime FHSA total of $80,000 and withdraw up to $120,000 under the Home Buyers’ Plan, though each person’s room, contributions and eligibility must be confirmed individually.

As an illustration, an FHSA of $40,000 and an HBP withdrawal of $60,000 give $100,000 for one person, which is a 20% down payment on a $500,000 home. That avoids mortgage insurance on the purchase, but it also means an RRSP balance that must be repaid and a smaller retirement account in the meantime.

Renters can use the same accounts

Registered-account room is not exclusive to buyers. A renter can hold a TFSA, RRSP and FHSA, invest inside them and let the growth compound tax-free or tax-deferred. That matters in a buy vs rent model because the renter’s side assumes the down payment and monthly savings are invested.

The calculator’s investment tax setting is an effective annual drag on returns. The table shows what it does to a $600,000 home with 20% down, a 4.5% rate, rent of $2,300 a month and a ten-year hold, using the other defaults. All figures are illustrative.

What this means for your plan

A renter who keeps savings in a taxable account loses part of the return each year, which strengthens the case for buying. A renter who fills registered accounts keeps more of the return, which weakens it. The honest comparison uses the same account choices on both sides, or states what assumption it makes about taxes.

If you plan to buy, the FHSA and HBP can lift the down payment without a taxable gain. If you plan to rent, the same room can serve a long-term savings goal. The first home savings tool shows how an FHSA could grow toward a down payment under the assumptions you choose.

Does a bigger down payment help?

More down means a smaller mortgage and, below 20%, a smaller insurance premium. But the money has a use elsewhere, and the model credits the renter with investing it. Suppose a $500,000 home, a 4.5% rate, rent of $2,300 a month and a ten-year hold.

At 5% down the buyer finishes $71,701 ahead of the renter; at 10%, $77,189; at 15%, $77,863; at 20%, $94,341; at 25%, $91,730; and at 35%, $86,509. Gains flatten and slip after 20% in this example because the model assumes the investment return is 5.5% while the mortgage costs 4.5%, so extra equity earns less than the alternative. The premium rules are in CMHC insurance and buy vs rent.

That conclusion depends entirely on the assumed gap between investment return and mortgage rate. Test your own in the down payment vs invest tool and read opportunity cost of a down payment.

Practical steps

Write down each person’s available room, the timeline for the purchase and the amount you still need after registered accounts. Leave a cash reserve after closing, since closing costs are due on possession day on top of the down payment.

Then run the comparison with and without the accounts. The goal is not to find a trick; it is to see which choices are robust when the assumptions move. For household circumstances, see buy vs rent for first-time buyers.