Don't Rush to Repay Your Home Buyers' Plan
If you've pulled money from your RRSP through the Home Buyers' Plan to buy your first place, the instinct is to pay it back as fast as you can. It feels like debt, and debt is supposed to be bad. But the HBP is a strange kind of debt, and rushing to clear it is usually the wrong move.
You can take up to $60,000 out of your RRSP for a down payment, tax-free. Then you repay it over 15 years, a fifteenth of the balance each year. If you skip a year's repayment, that portion gets added to your taxable income, so you do want to make at least the minimum. Paying it back faster than that rarely helps you.
Two reasons. It's a 0% interest loan to yourself, so there's no rush to get rid of it. And HBP repayments aren't tax-deductible. You designate an RRSP contribution as a repayment and get no deduction for it, while a fresh RRSP contribution, or money into your TFSA or FHSA, still gets the full benefit. So the same dollar does more for you almost anywhere else.
The HBP still matters even now that we have the FHSA. The FHSA gives you about $40,000 of room, which often isn't enough for a full down payment on its own. The HBP adds up to $60,000 more per person, and you can use both on the same home. Personally, I'd use the FHSA first since it's tax-free and there's nothing to repay, then use the HBP to top up.
My wife and I are using both our FHSAs and the HBP, even though together it gives us more than a 20% down payment. For us it's a choice. We like owning more equity, borrowing less, and the cash-flow room that comes with a smaller mortgage. Putting more than 20% down instead of investing the difference is a real trade-off, and reasonable people land on different sides of it.
The point isn't that the HBP is free money. It's the cheapest, most flexible money you'll ever borrow, and clearing it early usually costs you the chance to put those dollars somewhere that works harder.
If you've used the Home Buyers' Plan, are you repaying just the minimum or paying it down faster?
