How to Withdraw from Your FHSA for a Down Payment
Tim Lyon • July 14, 2025
The First Home Savings Account (FHSA) is a fantastic way to save for your down payment tax free. It’s easy enough to open one but where most people have questions is when it comes to the withdrawal.
Here’s a simple breakdown so you know exactly how to take money out of your FHSA tax-free for your first home.
What Is the First Home Savings Account (FHSA)?
The FHSA is a federal savings program designed to help Canadians buy their first home. It combines the tax advantages of both an RRSP and a TFSA:
- Contributions are tax-deductible (like an RRSP).
- Withdrawals (including investment growth) are tax-free when used for a qualifying home (like a TFSA).
Contribution limits:
- Up to $8,000 per year.
- Lifetime maximum of $40,000.
- Unused annual room carries forward (up to $8,000).
Couples can each have their own FHSA, effectively doubling the savings power.
How the Withdrawal Works
Step 1: Check Your Eligibility
- You must be a first-time homebuyer (neither you nor your spouse/common-law partner owned and lived in a home in the year of withdrawal or the previous four calendar years).
- You must have a written agreement to buy or build a qualifying home in Canada.
- You must intend to occupy the home as your principal residence within one year.
Step 2: Complete the CRA Form
- Use Form RC725 – Request to Make a Qualifying Withdrawal from your FHSA.
- One form is required for each institution if you have multiple FHSAs.
Step 3: Submit the Form to Your Financial Institution
- Your FHSA provider will review the form and process your withdrawal.
- Funds must be paid directly to you (not to a third party).
Step 4: Receive the Funds
- Once approved, money is typically deposited into your account within a few business days.
- Plan ahead so funds are available well before your closing date.
When Should You Start the Withdrawal?
Timing matters:
- You can only withdraw after your offer has been accepted.
- Ideally, wait until after subject removal in case you don’t end up removing subjects.
- If the funds are needed for the deposit or you have a very quick closing, you can request the withdrawal before subject removal — just make sure you’re comfortable with that risk.
- As a rule of thumb, start the process at least 5–7 business days before you need the money.
Important Considerations
- 15-year limit: You must use the FHSA within 15 years of opening it (or by the year you turn 71). Otherwise, funds must be transferred to an RRSP/RRIF or withdrawn (and taxed).
- Eligible uses only: Withdrawals must be for a qualifying home purchase. If you withdraw for another purpose, it becomes taxable income.
- Plan your timing: Processing can take a few days. Start early to avoid closing delays.
Quick Summary
- FHSA = tax-deductible contributions + tax-free withdrawals for a first home.
- Withdrawals require Form RC725 and a written purchase/building agreement.
- Up to $40,000 per person can be contributed.
- Must be used within 15 years (or by age 71).
- Can be combined with RRSP HBP for maximum savings.
Need help with your mortgage? Book a consultation or call 778-988-8409.
Glossary
- FHSA (First Home Savings Account): A federal savings program allowing tax-deductible contributions and tax-free withdrawals for a first home purchase.
- Form RC725: The CRA form required to make a qualifying FHSA withdrawal.
- Home Buyers’ Plan (HBP): A separate program that lets first-time buyers withdraw up to $60,000 from their RRSP tax-free for a home purchase.
Tim Lyon
Mortgage Consultant
Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments. But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for. A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months. To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time. Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money. Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time. A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should. Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries. With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk. Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.
What affects mortgage rates? Does the Bank of Canada rate affect fixed-rate mortgages? These are questions that come up all the time, so in this this post, I’ll explain how fixed and variable rates are determined, why they don’t always move together, and what that means for you as a borrower. But to start with the short answer: While Bank of Canada announcements immediately impact variable rates, fixed rates usually have those expectations already baked in long before the announcement. That’s because fixed rates are forward-looking — they reflect where markets think rates are headed, not just where they are today. What Are Fixed and Variable Rates? Fixed Rate The interest rate stays the same for the entire mortgage term. Payments remain consistent, no matter what happens in the market. Variable Rate The interest rate changes during the mortgage term, moving up or down depending on the lender’s prime rate. Payments may stay the same (VRM) or change (ARM). How Do Fixed Rates Work? When you choose a fixed rate, the lender is guaranteeing your rate for the length of your term . To do this, they need to estimate what a fair rate will be over that time. This makes fixed rates more forward-looking — they often reflect not just today’s conditions, but also what the market expects to happen in the future. Key Points About Fixed Rates Strongly influenced by the Canadian bond market (especially the 5-year government bond yield). Lenders adjust their fixed rates based on investor expectations for inflation and future interest rates. Often, Bank of Canada moves are already baked into fixed rates before they happen. Example If bond yields suggest that rates will rise in the next year, lenders may increase fixed rates now, even if the Bank of Canada hasn’t made a move yet. How Do Variable Rates Work? Variable rates move directly with the Bank of Canada’s overnight rate. When the Bank of Canada raises or lowers its rate, lenders adjust their prime rate accordingly, and variable mortgages follow. For borrowers, the most important detail is the discount from prime , because that sets the actual rate you pay. For example, if prime is 4.95% and your mortgage is Prime – 0.5%, your rate is 4.45%. The discounts lenders offer change over time. In periods of economic uncertainty, lenders usually shrink the discount they offer, which can make new variable mortgages less attractive even if prime is coming down. Key Points About Variable Rates Directly tied to the Bank of Canada’s overnight rate, which is reviewed eight times a year. Banks adjust their prime rate in response to these moves. Your actual rate = Prime – discount (e.g., Prime – 0.5%). Example If prime is 4.95% and your mortgage is Prime – 0.5%, your rate is 4.45%. If the Bank of Canada cuts rates by 0.25%, prime drops to 4.70%, and your rate automatically drops to 4.20%. Why Don’t Fixed and Variable Always Move Together? Fixed rates reflect the bond market, which looks ahead at where rates and inflation may go. Variable rates respond directly to Bank of Canada decisions, reflecting current conditions. This is why fixed rates can fall while variable rates stay flat, or vice versa. Next Steps If you’re deciding between fixed and variable, understanding how each is set is the first step. The next is to match the right mortgage type to your budget and comfort with risk. If you’d like to review which option works best for you, I’d be happy to help. Need help with your mortgage? Book a consultation or call 778-988-8409 . Mortgage Term Glossary Amortization: The total length of time it will take to pay off your mortgage completely (typically 25–30 years in Canada). Bond Yield: The return investors get from government bonds. Used as a benchmark for fixed mortgage rates. Discount (Variable Rate): The amount subtracted from prime to determine your actual mortgage rate. Fixed Rate: An interest rate that stays the same for the entire mortgage term. Mortgage Term: The length of your mortgage contract with your lender (typically 1–5 years), after which you need to renew. Overnight Rate: The interest rate at which major banks borrow and lend money to each other, set by the Bank of Canada. Prime Rate: The interest rate banks use as a baseline for loans, influenced by the Bank of Canada’s overnight rate. Variable Rate: An interest rate that changes during your mortgage term based on lender prime rates.
