How to Turn $150K Into a $200K Down Payment – A Playbook for First-Time Buyers

First Time Home Buyer Mohsen Ravankhah 3 Dec

Buying your first home is a monumental step, but with rising home prices, saving enough for a down payment has become a major hurdle for many Canadians.

If you and your partner already have $150,000 saved between you, you’re closer to your dream home than you think. By leveraging tax-smart strategies and government programs, you can transform your savings into a $200,000 down payment in just two years. Here’s your ultimate playbook to make it happen.

The Secret Weapons: RRSP and FHSA

Canada offers two powerful savings tools for first-time homebuyers:

  1. RRSP First-Time Home Buyers’ Plan (HBP)
    • Withdraw up to $60,000 tax-free per person to buy your first home.
    • Contributions reduce your taxable income, leading to significant tax refunds.
  2. First Home Savings Account (FHSA)
    • Save up to $8,000 annually with a lifetime limit of $40,000 per person.
    • Contributions are tax-deductible, and withdrawals for a first home are tax-free.

These programs don’t just help you save; they maximize your buying power by offering both tax relief and tax-free growth.

The Game Plan: Two Years to Transform $150K

This plan leverages RRSP and FHSA contributions over two years to optimize tax refunds and savings.

Year 1: Lay the Groundwork

  • RRSP Contributions: Each partner contributes $30,000.
    • Tax Refund: $9,900 per person (based on a 33% marginal tax rate).
  • FHSA Contributions: Each partner contributes $8,000.
    • Tax Refund: $2,640 per person.
  • Total Refunds in Year 1: $12,540 per person, or $25,080 combined.

Year 2: Build Momentum

  • RRSP Contributions: Another $30,000 per person.
    • Tax Refund: $9,900 per person.
  • FHSA Contributions: Another $8,000 per person.
    • Tax Refund: $2,640 per person.
  • Total Refunds in Year 2: $12,540 per person, or $25,080 combined.

The Results

Here’s what your savings will look like after two years:

  • RRSP Withdrawals (HBP): $60,000 per person, or $120,000 total.
  • FHSA Balances: $16,000 per person, or $32,000 total.
  • Tax Refunds: $25,080 per person, or $50,160 total.

Grand Total:
$120,000 (RRSP) + $32,000 (FHSA) + $50,160 (refunds) = $202,160

Why This Strategy Works

This plan is more than just about saving; it’s about tax optimization:

  • RRSP Contributions: Provide immediate tax relief and allow for tax-free withdrawals through the HBP.
  • FHSA Benefits: Combine tax-deductible contributions with tax-free growth, maximizing every dollar.

By spreading contributions over two years, you also avoid overextending your budget while maximizing refunds.

The Payoff: Why a Larger Down Payment Matters

  1. Lower Mortgage Payments: A bigger down payment reduces your loan size, saving you thousands in interest over time.
  2. Access to Better Homes: With more upfront cash, you’ll have more options in competitive markets.
  3. Tax-Free Benefits: Combining RRSP and FHSA strategies ensures you get the most from government programs.

Take Action: Start Now to Maximize Your Savings

If you’re sitting on your savings, now is the time to act:

  • Open an FHSA: Start contributing immediately to build your balance and enjoy tax relief.
  • Max Out RRSP Contributions: Reduce your taxable income and claim significant refunds.
  • Plan Strategically: Work with a mortgage advisor to customize this strategy to your unique financial situation.

With government programs and expert advice, you can fast-track your homeownership journey. Don’t let your savings sit idle—start today and make your dream home a reality.