Do not forget about inflation and do not forget that your RRSP is still taxable when you withdraw it. Do not forget that you might need to wait even more time until your income is low and it make sense to withdraw from your RRSP.

As well do not forget that you can rent a room in your house and generate even more profit. Do not forget about the rate appreciation. Appreciation of an asset is an increase in its value which is roughly speaking is equivalent to the rate of inflation.

Have you driven around Canada lately? You know how much vacant land we have? In northern Ontario, you can drive 2,000 kms. with hardly any civilization. You could set off nuclear bombs and nobody would notice!

On the prairies, there are many places you can drive 4-6 hours on a major highway and see nothing but crops.

We also have millions of lakes, so believe it or not, every single Canadian could own a 1-acre lot on a lake!

I extrapolated the earth’s population and growth rate with the amount of land very roughly. In perhaps 5-600 years, if there is no interruption in our population growth, then we may start to see land shortages.

In the mean time, sorry, but I’ve heard the “they ain’t makin’ any more land” argument many times. Drive from Toronto to Vancouver and then tell us what you think about the likelihood of a shortage of land.

Ed

Contributing to personal mortgage means that you are freezing the money forever (until end of mortgage or sell of house)

Contributing to RRSP means more money to institions (government) and less money for you. It’s true you save on tax bracket NOW – but not later. If you plan to redeem the money – plan to pay big.

Therefore, the best solution is to invest that money in rental property – even if the rental income doesn’t cover the expense – because the expense will directly be reduced from your income – just like RRSP. The only difference is that your rental property now becomes a money generating medium that you phisical see and own (unlike RRSP). And the value of properties are generally increasing (unless a recession, but even then, don’t your RRSP go down in a recession?)

There will only be more people in this world. However, there will not be more land on earth. Therefore, i suggest investing in rental properties.

Ken

http://www.empire.ca/consumer/en/calculators/rrsp_mortgage_questions.html

Use the extra funds to purchase a multi family building. The rents will always increase and you can leave the building to your heirs. In addition, the monthly income will not simply disappear because the property value has declined unlike many retirement vehicles where your monthly income from those depends upon their value.

EricJ – http://www.dreamhomefinancing.com

So, I tweaked my SM Calculator to allow for this scenario. Here is what I found:

Inputs

- $300,000 House Value
- $240,000 Mortgage @ 5%
- $1,395.85 monthly payments amortized over 25 years
- 8% investment growth rate
- 5.75% HELOC rate
- Marginal Tax Rate of 46.41%

It should be noted that higher MTR’s make the case for investing into an RRSP more favourable when compared to the ‘traditional’ SM.

Here are the outputs:

With SM -
- Mtg is retired in 21 years
- $240k HELOC that is TAX DEDUCTIBLE
- investment portfolio of $304,142 that is NON-REGISTERED
- Adjusted cost base (not including commissions) of $138,516

With RRSP
- Mtg is retired in 18.25 years. Therefore, run the scenario until 21 years still making ‘mortgage payments’ but the money now goes to paying the HELOC interest and anything left goes into RRSP.
- $240k HELOC that is NOT TAX DEDUCTIBLE
- investment portfolio of $395,143 that is in an RRSP

Assuming the same MTR as used above, the net of it is whether a $240k LOC that costs $13,800 after tax to service annually and a fully taxable portfolio of $395k (that would be worth $212k if cashed out all at once) is better than having a $240k LOC that costs $7,650 after tax to service annually and a $304k portfolio (that would be worth about $265k if cashed out all at once).

If, however, your MTR is lower when you cash out (e.g. < 30%), then the advantage swings to the RRSP investment – especially if you can get rid of the HELOC quickly.

I am just a rookie. I just graduated from college. So, I have long way to go. Thanks for the feedback, I will definitely look for “Tax deductible mortgage”.

You might start looking for “tax deductible mortgage” to begin.

DAvid

threethings wrote that he had already enough down payment for a regular mortgage so I assumed that meant he wouldn’t need CMHC regardless.

Even at 7% the interest saved is only $28,000

For a fair comparison, you’d need to include the impact of the CMHC premiums. If, for example, the extra RRSP HBP withdrawal meant no premiums were necessary, then the CMHC premiums and interest on those premiums need to be included. Since the premiums are based on a percentage of the mortgage value, this could be a significant amount.

I don’t think it’s fair to assume a 4.5% mortgage rate over 30 years. The long term average is somewhere between 6 and 7 % I think.