If you’re a first-time home buyer you should know about the Home Buyers’ Plan (HBP). It allows you to borrow money from your registered retirement savings plans (RRSPs) to put towards a downpayment. You then have up to 15 years to repay the money to your RRSPs. While it’s possible to repay your HBP loan faster without prepayment penalties, the question is, should you pay off your buyers’ plan early or invest the money elsewhere?
What Is The Home Buyers’ Plan?
The Home Buyers’ Plan is a government program that allows first-time homebuyers to withdraw up to $60,000 from their registered retirement savings plan (RRSP), pooled registered pension plan, or specific pension plan (SPP) to purchase or build a qualifying home for themselves or a specified disabled person.
When Do You Have To Repay Your HBP?
With the HBP, you have up to 15 years to repay the money you withdrew from your RRSPs. Under the original rules, your repayment period starts two years after you make your first withdrawal from your RRSP for the HBP program.
However, the 2024 budget proposed a temporary repayment relief for participants making their first withdrawal between January 1, 2022, and December 31, 2025. This defers the start of the 15-year repayment period by an additional three years.
For example, if you made a withdrawal from your RRSPs under the HBP in 2022, your first repayment year would start in 2027.
However, if you made your first withdrawal before January 1, 2022, you aren’t eligible for this extension. Your repayment period starts two years after you made your first withdrawal.
If you want to start making your repayments before your repayment period starts, you can do so without a prepayment penalty. Any early payments will reduce the amount you have to pay in the first official year of repayment.
How Do You Make Your Repayments?
To start making your repayments, you have to make a contribution to your RRSP, RPRR, or SPP in the year the repayment is due or within the first 60 days of the next year.
Once you make a payment, you can designate all or part of it as a repayment. To do this, follow these steps:
- Fill out form: Schedule 7, RRSP, PRPP, and SPP Contributions and Transfers, and HBP and LLP Activities.
- Enter the repayment amount on line 24600
- Attach it to your income tax and benefit return
What Is The Minimum Required Payment?
Since you have 15 years to make repayments to your RRSPs, the minimum required payment is 1/15 of your total withdrawal each year.
For example, say you borrow $30,000 from your RRSPs with the HBP. To determine your minimum annual payments you divide $30,000 by 15 ($30,000 / 15) = $2,000.
Your minimum repayment for each year is $2,000.
Can You Repay Your HBP Early?
You can choose to start making repayments before the repayment period starts. If you do so, this will reduce the amount you have to pay in the first official repayment year.
If you pay more than the minimum amount in any particular year, it will reduce your minimum payments for the following years. You’ll have to continue making payments until your balance is zero.
While you can repay your HBP early, you should assess if there’s a benefit to doing so. You won’t receive any tax deductions on the repayments. Instead, you may find it more beneficial to make your minimum HBP payment and contribute any extra money into a regular RRSP. This way you can take advantage of the RRSP tax deduction while also making your minimum payment.
You might also consider putting the extra money toward other financial goals, such as making an extra mortgage payment or paying off high-interest debt.
How Do You Report Your Home Buyers’ Plan Repayment?
To report your HBP repayment, you’ll have to fill out Schedule 7, RRSP, PRPP, and SPP Contributions and Transfers, and HBP and LLP Activities and attach it to your income tax return. You have to start doing this the year you make your first HBP withdrawal from your RRSPs and keep doing it until you’ve repaid all of the money.
Where Can You Find Your HBP Repayment Details?
Every year the CRA will send you an HBP Statement of Account with your Notice of Assessment. This document will include:
- The amount you’ve repaid so far
- Your remaining HBP balance
- The amount you have to contribute to repayments the following year
You can view your statement of account by signing into your individual CRA account.
What Happens If You Don’t Pay Back Your HBP?
If you don’t pay back your HBP, you have to include the unpaid amount as income on your tax return and you’ll be taxed at your marginal tax rate. This is similar to what happens if you withdraw money from your RRSP, it’s considered income and you’re taxed accordingly. You also lose the RRSP contribution room forever.
If you pay less than the minimum required payment, you’ll need to go through the same process. Include the difference between how much you actually paid, and how much you were supposed to pay on your tax return as income.
Should You Pay Off Your HBP Early?
For first-time homebuyers, the HBP offers an opportunity to borrow interest-free money to put toward the purchase of a house. Once your repayment period starts, you have 15 years to pay back the money withdrawn from your RRSPs. While it’s possible to repay your HBP loan early, it doesn’t mean you should. Remember, there are no tax benefits on repayments, and you’re not paying any interest. Instead, you might consider using any extra money to make a new RRSP contribution for the tax deduction.
Alternatively, you can use the money for other financial goals, like making an additional mortgage payment or paying off high-interest debt. If you need help deciding what to do, you can always speak to a financial professional for more information.
HBP Repayment FAQs
