Don’t Rush Your HBP Repayment

A follow-up to Sunday’s video about paying back your HBP and the extended repayment grace period. Share with someone you know who used their RRSP and HBP to buy a home!

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Last April, the government announced an Extended Repayment Grace Period for the Home Buyers’ Plan. Instead of having to start the repayment two calendar years after the withdrawal, it’s been extended to five years for withdrawals made between January 1st, 2022 and December 31st, 2025. The government rightly recognized that, with these crazy housing prices and our high cost of living, first-time buyers are often really tight in the first few years after buying.

My thoughts here: Same logic as last Sunday’s video. We don’t want to repay the HBP until we have to. There are better places for the money — your TFSA or standard RRSP contribution for example. Why? Because the repayment is not tax deductible, nor should it be as you’ve already received a deduction for those dollars when you first contributed them.

That all tilts the math. Again, watch last Sunday’s video if you need to. So, take advantage of the new grace period. Now, I’ll admit one thing I did like about the repayment starting only two years later was that it was a great forced-savings program. You know I love those. To summarize, I am not saying, “Don’t save that money.”

I am saying, “Save it — and more — but don’t put it on the HBP balance until you have to.” By the way, what happens if you don’t make the minimum HBP payment one year? The government takes your RRSP and your house. Kidding. Of course. No, the amount your payment is short by becomes taxable income that year. Very fair.

Does it ever make sense to intentionally not repay? Yes, on occasion. Let’s say you’re going to be off a second year for parental leave and your very low income meant no taxes would be paid on that amount. But then you took that money and instead of putting it you into your HBP, you put it into your TFSA that you hadn’t maxed out on.

Hard to argue with that. But don’t get carried away with this — really that was a somewhat contrived example. In most cases, you are better to pay it back, just not ahead of time.