# HBP or no HBP



## amitdi (May 31, 2012)

I have gone through threads and the advice from experts on this forum is counter-intuitive. So this is more of a why thread?

Situation: I am putting 20% down. But I do have about $25K excess (in RRSP). Questions is how to allocate that money to maximize long term wealth? I have about $14K RRSP room, $10K TFSA room, $25K TFSA room for spouse.
My investments are all equity and I dont need the money for another 20 years. Also I am quite disciplined with money management.

Option 1: Let it sit in RRSP
Option 2: Withdraw as HBP. Use the $25K towards down. Use $25K of your saved downpayment funds to contribute this year's RRSP and TFSA.

I saw this thread, but that decision was HBP repay vs non-registered accounts 
http://canadianmoneyforum.com/showt...-I-pay-off-my-HBP-loan-as-quickly-as-possible

Here, it is HBP repay vs registered. I think option 2 is better as I can get tax refund for this year's RRSP and contribute the excess towards TFSA. If full, I can contribute to wife's TFSA and keep my HBP repayments minimum until these are full.

Thoughts?


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## amitdi (May 31, 2012)

Another consideration was to put more down. But at P-0.85%, effectively 2%, I am almost certain to not do that.


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## Guban (Jul 5, 2011)

It depends on how agressive an investor you are. The more conservative you are, the less you borrow. If you are more aggressive, borrow more.

Here's the spectrum.
1. Very conservative. Liquidate all TFSA funds and borrow the most you can from your RRSP as well as your wife's. This results in the lowest borrowing.
2. Medium. Leave all RRSPs in place. Don't use the HBP.
3. Aggressive. Same as option1. Then borrow it all back (and more?) and then invest in equities. Now you have the maximum leverage allowed, and a tax deduction for the borrowed money too.

Of course, you can be medium aggressive or medium conservative and do something in between.


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## FI40 (Apr 6, 2015)

How much unused RRSP contribution room do you have?

If you are able to max out your RRSP and TFSA every year, then I don't see much point in using the HBP beyond changing your asset allocation to more house/less RRSP instruments. Since you don't directly pay investment taxes in the RRSP, it's best to use it as much as possible for long-term investment.


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## FI40 (Apr 6, 2015)

FI40 said:


> How much unused RRSP contribution room do you have?
> 
> If you are able to max out your RRSP and TFSA every year, then I don't see much point in using the HBP beyond changing your asset allocation to more house/less RRSP instruments. Since you don't directly pay investment taxes in the RRSP, it's best to use it as much as possible for long-term investment.


Please disregard, I didn't see that you had posted your contribution room for all accounts.

In your case I think it depends a bit on your tax bracket. Using the HBP is probably a good idea as long as you then use a HELOC to contribute back to it to get the tax deduction. Limiting taxes is the main thing here.


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## My Own Advisor (Sep 24, 2012)

I think using the HBP comes down to how much (re: how aggressively) you are willing to pay off debt. 

If you intend to get after it, I would keep the money in the RRSP. If you intend to pick away at the debt, and it's not a priority, I would use the HBP.

Here are the reasons:
-Using HBP, you are borrowing from your future self. Not good.
-Using HBP, you are giving into some level of lifestyle inflation.
-Using HBP, loss of compounding time.

If you don't care (as much) about borrowing from your future self then go ahead and use the RRSP and enjoy. This doesn't make it wrong but some things to consider.


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## amitdi (May 31, 2012)

Thanks for all the great advice. Yes, FI40 - I was planning to max out RRSP and get the deduction. HBP will enable me to put fresh money in RRSP which may otherwise go somewhat vacant. I think it does not matter if I borrow from HBP and put it in TFSA, I think. MOA and Guban, great insights, thanks.

Ofcourse not related to the HBP, but I will be also using HELOC to invest (Smith Manoeuvre)


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## Eclectic12 (Oct 20, 2010)

^^^

I'm not sure what you mean by "fresh money in RRSP" which would not be available
. 

Money contributed to the RRSP after the HBP withdrawal has occurred has to be identified as a HBP repayment or a new RRSP contributions.

A HBP repayment can't be deducted from income as it is a repayment which does not require RRSP contribution room. The deduction already happened when it was originally contributed and no income tax was taken when the HBP withdrawal happened.

A new RRSP contribution can be deducted against income but requires one to already have RRSP contribution room.


The key here is the HBP makes tax deferred money available to apply to the mortgage while setting up a fifteen year repayment time line. It does nothing to the available RRSP contribution room (or available deduction room).


As for withdrawing from the HBP to store in the TFSA - I believe there are limits as to how far in advance one can withdraw. There are also limits requiring the money be in the RRSP for a certain amount of time to be able to deduct the RRSP contribution from income (ex. put in this week, withdraw under HBP next week and deduct against income is not allowed).


For option 2, I didn't catch that part of the plan was to use the HBP for the mortgage and then re-allocate the same amount to RRSP/TFSA ... coupled with a SM - this sounds too complicated, with a lot of risk for the benefit.


Cheers


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## amitdi (May 31, 2012)

Eclectic12,
I have 30K in RRSP today and a 15K contribution limit.

"fresh money in RRSP" - So I dont withdraw HBP, my this year's new RRSP contribution may not be utilized. The deduction I could get now will be delayed till later years.

My conclusion from all this is that -
I have the 30K going on for about a year now, so thats not an issue. option 2 is same as I talked here. If I withdraw HBP, that gives me the money to make new RRSP contribution thereby getting the tax benefit this year (instead of later years). Ofcourse, I will show to CRA that HBP went to downpayment and my savings went to RRSP (clean paper trail). This plan does not make sense for TFSA as I dont have the tax refund there.


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