As you probably know the Holy Roman Empire has been a rather loose union of nearly souvereign rulers. The House of Habsburg was one of the mightiest families and in 1496, when the scenario starts, the leader of the Habsburgs is the holy roman emperor himself..., so you would have to think about what to do with the rest of germany.
The territory at that time would mainly be Austria; Bohemia and Hungary followed in 1526, Croatia in 1527. Until then, Hungary was independent, though losing vast territories to the ottomans.
In 1504 the house of Habsburg ascended the spanish throne and until 1556 with the resignment of Charles, his realm divided in a spanish and an austrian line which although were alligned until the spanish line ended 1700.
So what to do with this? If you strictly want to be correct with the starting date, leave Hungary in. What you could do, is splitting the HRE, so you have Austria (representing first the house of Habsburg, later just the austrian line), in locked Alliance with Spain (they were probably just waiting for someone to die at those days), and a faction of "minor" german states.
As there probably is no free slot left, i'd say: leave it as it is, for the focus of the scenario is Colonisation and not european family politics (that would be the job for another scenario with a bit less new world in it ;-).