Published March 12, 2025 • 6 Min Read
TLDR
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On March 12th, 2025, the Bank of Canada announced its seventh straight interest rate cut, reducing its policy interest rate by 25 bps to 2.75%
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A lower interest rate, combined with recent changes to mortgage rules, may bring more first-time home buyers to the spring market
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A First Home Savings Account (FHSA) is designed to help first-time home buyers invest towards a first home
Bank of Canada cuts its policy rate again
In the latest interest rate announcement, the Bank of Canada reduced its benchmark rate by 25 bps, marking its seventh straight rate reduction since June of 2024. Bringing the rate down to 2.75%, the cut is welcome news for Canadians looking to enter the housing market during the historically popular spring season – especially when combined with the new mortgage rules that took effect in December.
Homeownership more accessible for first-time home buyers?
It’s no secret that many first-time homebuyers in Canada have felt shut out of the housing market for some time. But recent interest rate cuts and changes in mortgage rules have opened the door a little wider. Here’s a quick recap of how these changes could make homes more affordable for new buyers:
30-year amortizations on insured mortgages:
This change, now available to all first-time homebuyers, increases the mortgage term from 25 to 30 years, lowering the monthly mortgage payment amount.
Reduced down payment requirements for homes up to $1.5 million:
This change makes it easier for buyers to enter high-priced markets by allowing lower down payments on higher-priced homes.
Reduced interest rates:
At this time last year, the Bank of Canada’s overnight rate was 5.00% — 2.25 basis points higher than it is today. As a result, fixed and variable mortgage rates have also fallen, lowering borrowing costs for buyers.
Getting serious about saving? How a First Home Savings Account can help
A First Home Savings Account (FHSA) is a registered plan designed to help first-time homebuyers invest towards their first home. Contributions to the plan are tax deductible, while investment income earned within the plan is generally tax-free, which can help lower your tax bill. Plus, withdrawals made to purchase a first home are not taxable. The tax-efficient nature of the FHSA helps first-time buyers maximize their buying power.
FHSA holders can contribute up to $8,000 per year over 15 years, up to a lifetime contribution limit of $40,000 towards their first down payment.
Who can open an FHSA?
A First Home Savings Account is available to Canadians at least 18 years of age (and no less than the age of majority in the province where you live). You must also be a resident of Canada and have a valid Social Insurance Number.
And as the name suggests, you also need to be a first-time homebuyer. This means neither you nor your spouse or common-law partner can have owned a home (that you lived in) during the year you open the account or any of the previous four years.
How to open an FHSA
Many banks, credit unions, investment firms and online brokerages in Canada offer FHSAs. With RBC, you can open an FHSA online through RBC Direct Investing or RBC InvestEase1. You’ll be asked to provide your ID, Social Insurance Number and other details about yourself to open the account.
Investing in an FHSA
Because the First Home Savings Account is a type of registered plan, you can hold investments in it – the same way you can invest in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). You can hold stocks, bonds, ETFs, mutual funds, options and certain GICs in your FHSA.
Thinking of withdrawing from your FHSA?
Ready to buy a home? You can withdraw from your TFSA at any time. For your withdrawal to be tax-free, there are some criteria to meet:
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Be a first-time homebuyer: You (and your spouse/partner) haven’t owned a home (where you lived) during the year you withdraw or the previous four calendar years
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Have a written agreement: You need a signed agreement to buy or build your first home in Canada by October 1 of the year following the withdrawal
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Intend to move in within a year: The home must be your principal residence
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Be a resident of Canada: Throughout the period from the withdrawal to the acquisition of the house
Dreaming of buying your first home? With lower interest rates, improved mortgage rules, and new ways to invest – like the FHSA – that dream might be closer than ever.
Buying your first home can be exciting, but it’s normal to feel a bit overwhelmed. An RBC Mortgage Specialist can help you understand today’s housing market and provide personalized advice that matches your goals and timeline. Get in touch and take the first step toward that dream home today.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
1RBC Direct Investing Inc., RBC InvestEase Inc., and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Canadian Investment Regulatory Organization and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc.
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