Future-Proof your Home Savings: How an FHSA can Help you Beat Rising Housing Costs

The high costs of owning a home in Canada are no secret. Interest rates hit a 20-year high in 2024, leaving first-time homebuyers in a tricky position. Fortunately, the Canadian government has introduced tax-advantaged plans called first home savings accounts (FHSAs) to make saving for a home easier, even in the face of changing housing costs. By keeping your first-home savings in an FHSA, you can enjoy tax-free growth on your investments. When you’re ready to buy a home, you can tap into your savings to cover up-front expenses and make the cost more manageable.

Who can get an FHSA

You can open an FHSA at a bank, credit union, insurance provider, or another participating financial institution as long as you meet all of the following requirements:

• You’re a Canadian resident.
• You’re at least 18 years old at account opening.
• You’ll be, at the most, 71 years old on the final day of the year you open your account.
• You didn’t live in a qualifying home that you or your spouse (or common law partner) owned as your primary residence during the calendar year you opened the account or the four preceding years.

Save more with FHSA tax advantages

An FHSA offers tax benefits throughout the saving and investment processes, which can help you put aside more money for your future home.

Make tax-deductible contributions

After you open your account, you can begin contributing up to $8,000 per year, up to a total of $40,000. If you contribute less than $8,000 in a year, the unused participation room rolls into the following year, up to $8,000. For example, if you contributed $3,000 in 2024, $5,000 would roll into 2025, allowing you to contribute up to $13,000 that year. But if you went on not to contribute anything in 2025, only $8,000 would roll into 2026, leaving you with $16,000 in participation room for that year.

FHSA contributions that fall within the annual limit are generally tax-deductible. So, saving for your first home can also save you money on your income taxes.

Earn tax-free investment gains

Your FHSA contributions do more than just sit in your account. With a standard, managed FHSA, your financial institution invests your contributions into a portfolio of stocks, mutual funds, high-yield savings accounts, or other assets, giving them the opportunity to grow. With a self-managed FHSA, you choose and manage your own investments. Capital gains, interest, dividends, and many other investment earnings in your FHSA account aren’t subject to taxes. While you may have to pay some management fees to your financial institution, you can keep most of the money you earn.

Make tax-free withdrawals

Unlike some other tax-advantaged accounts, withdrawals from an FHSA also aren’t subject to income taxes—as long as you use the money you take out for a qualifying home purchase before October of the following year.

One common approach for applying FHSA funds is putting them toward your down payment. It’s typically a good idea to pay a higher down payment than required if you can. That’s because the more you pay down your loan upfront, the less you’ll owe in the long term. With a smaller outstanding balance, you might save money on interest by choosing a shorter amortization period or lower your monthly payments with a longer amortization period.

If you don’t purchase a home, you won’t lose the money in your FHSA. You can redirect the funds to another tax-advantaged savings account. You can also make withdrawals as needed; just remember that money you don’t put toward a home purchase will affect your income taxes.

Preparing for the future with an FHSA

While you may not be able to predict changes in Canada’s housing market, you can use resources like the FHSA to prepare for whatever the future brings. It’s never too early to start investing in your future. A trusted financial advisor can help you get started with an FHSA account and put you on track to meet your goals.

Media Contact Information

Name: Sonakshi Murze

Job Title: Manager

Email: [email protected]

Country: Canada