The Home Buyers’ Plan dilemma

Many first time homebuyers borrow their down payment from their RRSPs, but does it make sense to pay it back? Bruce Sellery offers his advice.



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My husband and I are both in our 30s and we withdrew from our RRSPs under the first-time Home Buyers’ Plan (HBP). Our question is whether it is worth it for us to pay off the HBP loan, which is about $35,000 between us. His parents say that having an RRSP is useless because it only lowers the pension amount that we can get when we retire. My husband has a pension plan as a federal government employee and I have one through my work at a hospital. My husband earns a $60,000 per year, while I earn $39,000. Money is a bit tight right now as we are trying to pay off more of our mortgage every month and I just found out today that I’m four-weeks pregnant. We are so confused about whether to pay more on our mortgage, buy RRSPs, or pay off our HBP loan. Please guide us on what to do.


In-laws are great. They have a never-ending supply of embarrassing stories from your husband’s past, and if they live nearby, perhaps they will provide some childcare for you in the future. (Congrats on the baby news by the way.) But in-laws don’t necessarily provide the best financial advice.

RRSPs won’t affect pension income

Your husband’s parents told you that an RRSP would lower the pension amount you get when you retire. According to Jason Heath, a CFP with Objective Financial Partners in Toronto, that is inaccurate. “Neither of these pensions are means-tested. That is, they have absolutely nothing to do with your other sources of income.”

Perhaps your in-laws were thinking about Old Age Security, which does get clawed back if your income exceeds a certain level. But given how long it will take before you start collecting OAS, it will be impossible to say what the program will actually look like and how much you’ll be able to draw from it 30 years from now. Instead, it makes more sense to focus on things that will provide the best life for you post retirement.

As for the claim that RRSPs are “useless,” I beg to differ. RRSPs are a great way to save for retirement because they allow you to defer income tax into the future. This is less critical to you because you and your husband both have pensions, but it is still a big benefit. Look at it this way: wouldn’t it better to have income—and pay taxes on it—than not have any money coming in? Personally, I’d rather be the person with the income.

Tax implications on unpaid HBP loans

If you choose not to repay the HBP loan then the government will treat the amount you withdrew from your RRSP as income and tax you on it. Consider this example. Let’s say your husband withdrew $25,000 of out of his RRSP under the Home Buyers’ Plan. If he decides not to pay the money back, given his salary he’ll be looking at a tax rate of between 31% in Ontario to 38% to Quebec (most of the other provinces fall somewhere in between) on the HBP amount. At those rates your husband would take a $500 and a $650 tax hit a year for the next 15 years. Ouch.

Focus on repaying the HBP loan

You also mention that you are trying to pay as much as you can on your mortgage. If mortgage rates were at 20%, that would be the right approach. But rates are at historic lows, so it makes more sense to pay back your HBP loan to avoid the tax hit instead of trying to get around the 3% to 5% interest you’re paying on your mortgage. Generally speaking, you need to repay 1/15 of the $35,000 amount you withdrew under the HBP every year. That works out to just under $200 per month. My advice would be to stop trying to pay more on your mortgage and instead focus on your HBP repayment.

If you’re anything like we were, you are probably wildly excited and totally stressed about the arrival of a child. When you look at your cash flow, if you really can’t make it work to repay both of your HBP loans, then focus on your husband’s portion of the loan first because he is in the higher tax bracket.

Jason Heath has one other encouraging thought: “If the only debt they have right now is their mortgage, I think they’re doing well for a young couple. I’d be more inclined to ignore the HBP repayments if they had credit card or other consumer debt.” But you don’t have consumer debt. And you do have pensions. You would be amazed how many people would give anything to trade places with you.

21 comments on “The Home Buyers’ Plan dilemma

  1. Very good advice from Bruce,

    20 years ago (or so…!) , my wife and I were facing similar situation (bought first home using HBP). We both work for Fed Govt, but our pensions (without penalty) is payable at 60 (our age now is 52 and 51 yrs old). We are thinking of leaving the workforce before 60 Yrs old and intent to use our RRSP to "pad" the period while waiting for our Public Service Pension.

    Just to say, that I am glad that we kept making RRSP Contributions (and paying our HBP) over the years.


  2. Despite money being tight….I would consider slowly paying off the HBP and be done with it!
    If you do not, it is treated as income… better off paying off the minimum. I personally do not think the HBP is the greatest plan because you borrowed money from yourself at 0 per cent interest and you have 15 years to pay it off. That is also 15 years of lost interest…..!

    Better, yes to pay what you can to your RRSP……provided it saves you tax….and consider as I said paying off the HBP….it just gives the illusion you have buffer room and maybe you do not.

    So great advice…get the HBP off your back ASAP…


    • Very true statement, except for one factor. You say you are borrowing money from yourself to put a down payment on a house at 0%. It is far from 0%. You are saving yourself paying the mortgage rate on that amount. (As of March 2016, rates hover between 2.5-4%). Additionally, if your down payment now exceeds the 20% of the total cost of the house thanks to your HBP RRSP withdrawal, you are saving yourself the CMHC fee. For argument sake, if you put down $45000 on a $450,000 house (10%), your CMHC rate is 2.4% which equals $9720.00 of money tacked on to your mortgage rate (and that’s not even including the mortgage rate that you will be paying on the principal $9720. Instead, If you withdraw $45000 from your RRSP and make your down payment 20%, that fee is completely waived! So the 0% return you say is actually in fact your mortgage rate (2.5% roughly) + the 2.4% CMHC fee + the 2.4% rate on your CMHC fee of $9720.00. So you’re saving yourself 4.9% GUARANTEED interest (plus saving yourself the $9720 plus interest thanks to the HBP! I’d say that’s a pretty good return, and better than any mutual fund you have with any bank. Seek professional advice whether taking out your HBP RRSP makes sense for you, but for the majority of people, it definitely saves you $$ in the long run.


  3. My husband and I are retired with govt pensions. We have just withdrawn RRSPs for the HBP also. Since we were penalized big time on some of them, we are thinking that we won't pay back the money. Taxes shouldn't be too hard on us as we'll have less income. We think our mediocre pensions will suffice and we still have medical/dental plans and life insurance. Any comments?


    • Pay back your HBP before you contribute more into any other investment. Your interest rate on the money you aren’t paying back will be over 30%. Seek professional advice


      • Hi,
        Can someone explain this to me please.. Im so confused right now. I had a $6000 rsp loan last 2013 that i withdrew using HBP. So my bank is charging me $65 to pay for the loan, then when i file my 2015 income tax now i have to repay the hbp for 15 yrs. why am I paying 2 loans? Are the bank not supposed to be charging me for the loan payment that I withdrew using HBP? Please help! :(


        • Xan
          In order to use your RRSP under the Home Buyers’ Plan you need to fill out formal paperwork and submit it to your bank (who submits it to the government). Do you remember going through this process? If you want, you can always reach me directly at — if we speak privately, I may be able to help sort through what happened (as I’ve done for other readers in the past).


  4. Hi,

    I have a odd question regarding HBP. My wife and I used the HBP plan back in 98' using 3000. For years, we were paying back in into the plan-pay back $1600. Then the company with the RRSP had to close-out the account and sent us a T4RSP receipt for approx. $1000. The monies were fully taxable. Even though we were already taxed for the $1000 as RSP income (used for HBP), the notice of assesment (HBP) has not changed. So essentially we are paying taxes on 4000(original 3000 + 1000) income instead of the original 3000. Does this makes sense?


    • First of all, the company holding the account should not have closed it out without your authorization. It may have been better to transfer the RRSP to another financial institution and avoid the tax hit.
      Secondly, the numbers don't seem to add up. You should not be paying taxes on more than the amount withdrawn. To clarify, the money taken out for HBP is not taxed to you, unless and until you miss the required annual repayment or if you don't enter the repayment properly in your tax return – you must explicitly tell CRA how much of your annual RRSP contribution is for HBP repayment. But no matter how it was done, you should not have to pay tax on more than the orginal $3,000.


  5. Focus on saving for your maternity leave!!! Maternity benefits are maxed out at $400 per week – that IF you earned $42K per year at your job. Save money for your year off and when it's tax time at the end of your mat leave, you might consider writing off some of the HBP loan.

    If you max out on Mat Leave benefits, your annual earnings would be $19K, if you decide to write off $10K in HBP that year, you won't have to pay as much in income tax.

    Again – save for your maternity leave!!! Babies are expensive and the drop in pay will have an impact on your household income without the additional baby expenses.

    You and your husband have lots of time to focus on paying off your mortgage.


  6. Making an extra 2 mortgage payments a year over the life of the mortgage can save you anywhere from $30-75K (depending on the size of your mortgage) in interest alone! So your saying people SHOULDNT put down extra money and save tens of thousands of dollars over the course of the mortgage in order to not be dinged $500 a year in additional taxes


  7. I withdrew 25,000 using the HBP. Since my income was (0) zero last year I would like to take more than 1/15 as "income". Anyone know if that's possible? In other words, take 10,000 as "income" and still pay no tax.


    • You cannot.

      "You cannot include in income an amount that is more than the result of this calculation."

      "If you do not repay the amount you have to repay for the year, you have to include it as RRSP income on line 129 of your tax return. The amount you include on line 129 is the minimum amount you have to repay as shown on your Home Buyers' Plan (HBP) Statement of Account."


      • Thank you. I've been wondering about that. My wife is on Mat leave and has 10k in HBP left. I though this would be a perfect time to drop all of that onto her income and call it a day. Not allowed to "cheat" the system like that though it seems.


  8. I find it all frustrating. I am a first time home buyer. I look after my dad and grandpa. All was good during the process until my lawyer told me I had to pay a Property Transfer Tax. Now, I am moving from Alberta to BC. Alberta is the only province that does not charge this. Is there another program that can help with the additional $5000 I must pay? I do not have RRSPs to work with. So that eliminates the HBP. Provinces have all these rebates and incentives but none if they are a first time home buyer going out of province.
    It is hard enough coming up with a down payment. But to be told I have to pay this enormous sum is just ridiculous.


  9. I borrowed $8000 back in 1999 from my RRSP using the first time home buyer plan. In 2007 I moved to nova scotia and cashed in my RRSP to live on. But I continued to inter it on my income tax as income and designate it to the home buyers plan. I now only have two years left. Considering the years going down. It shows that I have been paying but who am I paying. Is this all taxes because I didn’t buy more rrsp’s or am i paying myseft back. Where is the money going.


  10. I am not sure I understand the example that you gave about not paying back the HBP. This is what you said:

    “At those rates your husband would take a $500 and a $650 tax hit a year for the next 15 years. Ouch”. If he doesnt pay back the HBP, the total tax he pays over 15 years = 15 * ( 500 + 650 ) = 17250. That is still less than the $25000 HBP withdrawal that he made. Am I missing something here? or does it seem that it is better to not pay the HBP?


  11. In 2006 I borrowed money from my RRSP towards down payment on my house under the HB Plan. I am now 70 years of age and heard somewhere that after 71 years the annual payment plan is no longer effective. If this is true can I borrow the outstanding $9,000.00 from my line of credit and return the said amount to my RRSP closing the outstanding balance? If I don’t do it this way I am sure it would be added to my pension which means I would have to pay a large sum in taxes. My line of credit rate is fair percentage wise. Thanks in advance for your response.


  12. does interest accrue with first time home buyers closing cost loans.


  13. Hi Bruce
    I’m thinking of withdrawing from HBP to purchase a primary residence in a city. Problem is that I work in a remote community for most of the year so will have to be away from the property for long periods of time..
    a) What are the penalties if I rent out the basement OR all of the HPB house? Would I be considered no longer eligible?
    b) Secondly, Do I have to repay the HBP before I may sell my primary residence?


  14. Hi all,
    As a new immigrant, i I was trying things, HBP was one of them.
    1- March 2014: I opened RRSP for my wife for 931 CAD with Desjardins
    2- June 2014: Withdrew it under HBP
    3- Dec 2016: I went to Desjardins to pay 1/15 for RRSP, they said that the account was already closed, which I don’t remember I did.and closed the account
    Now, It’s only 931 CAD, and I have no intention to open RRSP for my wife.
    Please, I want a fast fix for this.
    Can I add this 931 CAD to our 2015 tax income and declare it as income, or what?

    I am not good with accounting and banking :)



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