Tips for paying off your Home Buyer’s Plan

There may be more benefit in repaying the minimum HBP

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From the Summer 2014 issue of the magazine.

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Home-buyers-plan

(Image courtesy of Danilo Rizzuti / FreeDigitalPhotos.net)

Q: I have maximized my RRSP contributions for 2013, including $1,300 paid back to my Home Buyers’ Plan (now at $13,000). I have about $12,000 in RRSP contributions to carry forward to next year. Can I apply it directly to my HBP all at once?

— Kelly Leach, Kelowna, B.C.

A: You can eat an entire chocolate cake in one sitting, but you might not want to. The same goes for using that RRSP carry-forward to eliminate what you owe under the Home Buyers’ Plan. Adrian Mastracci, a portfolio manager with KCM Wealth Management in Vancouver, says “there may be more benefit in repaying the minimum HBP and deducting the rest as a normal RRSP contribution for 2014.” The reason is that the RRSP contribution will defer income tax into the future, and give you a higher tax refund in the present. An HBP repayment doesn’t do either because you received those benefits already, when you make the RRSP contribution the first time around. In future years, if you have retired all other consumer debt, are making good progress on your mortgage, maxing out your RRSP, and still have cash on hand, you could retire your HBP early and celebrate your accomplishment with the aforementioned cake.

Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal finance question? Write to us at ask@moneysense.ca

3 comments on “Tips for paying off your Home Buyer’s Plan

  1. I disagree.
    The quoted reason was …” the RRSP contribution will defer income tax into the future, and give you a higher tax refund in the present.” But the assumptions are wrong. There is NO benefit from a deferral of tax. And there is NO benefit from the tax refund. See video https://www.youtube.com/watch?v=azZkP-bV1QY

    The issue that needs clarifying is “what is the marginal tax bracket now, and in the future of this person?’

    Reply

  2. I am missing something here? If he has maxed out his rrsp contribution and has $12k still to deduct, isn’t that over contributed by $10k? The individual could be subject to penalty tax?

    Reply

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