Pros and cons of the HBP
Pros: In letting you take an "interest-free loan" from your RRSP, the HBP enables you to take a smaller mortgage. In addition, if you have some liquid assets outside of your RRSP for purchasing your home and unused RRSP contribution room, you can take advantage of this additional capital by directing it through your RRSP. At the same time, you will benefit from a significant tax deduction. Taking out a loan to contribute to your RRSP will also yield such a tax deduction. In this case, the loan could be repaid 90 days later from the money withdrawn from your RRSP under the HBP.
Cons: When you retire, the value of your RRSP will depend on whether or not you participated in the HBP. If you registered for the HBP, you must be disciplined and repay your RRSP as soon as possible. People often consider only the advantages of the HBP, only to realize later that the program has significant repercussions on their income.
The following example demonstrates how the value of an RRSP changes with participation in the HBP.
Mr. A registers for the HBP, withdrawing $15,000 in 2005. He repays $1,000 to his RRSP every December 31 from 2007-2021. Ms. B. does not participate in the HBP. Suppose that the rate of return is 7.0% over 30 years.
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Mr. A
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Ms. B
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|---|---|---|
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Value of RRSP in 2003
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$15,000
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$15,000
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Value of RRSP in 2034
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$69,332
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$114,184
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 |
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