Could you mind to provide lawyer name …/CIBC Branch .

I am in need to use my rrsp for my investment property

what will be the approximately cost for this set up
Thanks

The INTEREST payments, while not using up RRSP contribution room, also do not result in tax deferral. In fact that money is double-taxed – once upon earning it and again upon withdrawing it from the RRSP.

There is one question here that seems of primary importance, and I can not find the answer anywhere.

I understand that the repayment of the mortgage to the RRSP does not count against your contribution limit. To me this implies that you are deferring taxes on both the amount made as a mortgage payment, and on your regular contributions.

Can anyone link me a page that explicitly states that the mortgage payments result in tax deferal?

It would seem to me that this is the critical point, as anyone who is seriously saving for retirement will max their contributions quickly, and receiving tax deferral on mortgage payments makes this a much better ROI then any other possible investment.

Here is how I see it (numbers are for convenience sake, assuming >100k yearly income, RRSP contribution room limited to yearly max)

$200k mortgage paid off with RRSP.

In the first year then we get the following situation…
Contribution of $21K to RRSP (assumed max), assume a high interest rate payment on mortgage, so an additional $1500/month in mortgage for a total of additional $18k contribution. If the mortgage repayment results in deferred tax, the resulting tax refund of minimum $13k (likely much more, depending on marginal tax rate. rates can be found here http://www.taxtips.ca/taxrates/on.htm).

So with a bank mortgage the payments increase my home equity. With a RRSP mortgage, the payments increase my home equity, but they also give me deferred tax at a rate of >30% which can be reinvested (TFSA), AND the interest on the mortgage is actually being paid to my retirement savings???

Please tell me how I have gone wrong here, if at all, it seems to good to be true. Include links to source informatoin would be appreciated.

(OK, if you read all this, my apologies. Gordon Pape says that the mortgage payments do not count as contributions, but are also not tax deductible. Never mind.)

I don’t mean right NOW. I should clarify that you have until the end of February 2010 to make a contribution that will count towards your 2009 tax year.

Depending on how much money and how high your tax rate is you may want to consider the following option. Take $50k out of ING right now and deposit it into your (self-directed) RRSP. Then in the new year you have the choice to assign a part of your contributions to 2009 and a portion to 2010. It may make more sense to split it up because the net benefit of the contribution is reduced if it takes you to lower and lower marginal tax rates. If you can find a maximum amount that you can deduct and keep in a high tax bracket you benefit the most.

Then you can use the substantial tax refunds to help pay down the mortgage. You could be mortgage free before the end of 2011 depending on how aggressive you can be with your payments.

From what I understand. If you can’t make the payments the bank reposes the house and sells it to pay back your RRSP. just like any other mortgage.

I am thinking that an open mortgage that you pay only interest is the way to go. To me the big advantage of this is you can set the worst mortgage terms possible for the best flexibility. Pick the lowest interest rate of course. Another words the retards 40 year mortgage or an interest only mortgage works here cause the stupid money in garbage payments actually go into your own pocket. But for a normal mortgage I am not so sure this is the way to go unless interest rates go monkeydog which I do expect once the recovery is in full boom.

IMO

I am seriously thinking about setting this up.

After all…. as an amatuer I realize that I gotta get out before I am eaten by the big boys.

I have 50k in cash, sitting in ING right now. I have a 50k mortgage on my prinicipal residence, at 3.75%, no penalty to pay it off. I also have 50k+ of RRSP contribution room for 2009.

I could just pay off the mortgage. Done. Home free.

But why not put the 50K in tot he RSP, get a massive tax break this year, and then borrow from the RRSP to pay the bank loan? I could charge myself , say 6.5% interest. I get tax break, I am home free (essentially) and I am contributing more to my RRSP then the normal cap limits would allow…

And what happens if I don’t make the payments? The RRSP forecloses on me? I sieze my own home and give to back to myself?

Am I missing something here?

Thanks,
Marcel Therrien

The main problem with this strategy is that you can make quite a bit more with your RRSP invested effectively than a mortgage rate. JMEDY is doing okay on the RRSP, but has the most expensive mortgage in Canada.

Our clients have been taking variable mortgages for the last few years, so most have a mortgage rate now of 1.65%. It is shocking how much principal you pay when your mortgage rate is only 1.65%! The RRSP invesments are of course down a lot in the last year, but we still expect an equity return long term. So, 7.65% is an okay, but a bit low for a long term RRSP return, but is a horrible mortgage rate.

If your RRSP long term averages 6,8 or 10%, and you can get a mortgage between 4-5% almost all the time, then there is a spread profit that you lose, in addition to the high setup and annual fees of an RRSP mortgage. With an RRSP mortgage, your mortgage rate and RRSP return are the same. In all cases, this either means a low RRSP return or an expensive mortgage.

I realize it sounds good, but it is not the same as being mortgage-free. Your mortgage will have to foreclost on you if you don’t pay. So, it is no different (except more expensive) than having a mortgage at x rate and investing your RRSP in a bond at x rate.

Investing in a rental property is intersting, but has the same problem. The interest is tax deductible, but so would any other mortgage that you could get at a better rate.

Investing in someone else’s mortgage is also interesting, if you can charge them a higher rate. The issue is risk. Anyone that is willing to pay you a high rate is probably a credit risk. Do you really want to invest your RRSP in a mortgage that could take a big loss?

The real high rates are if you have a 2nd mortgage, but the risk here is much higher. If the mortgagee does not pay you, you cannot foreclose, unless you buy out the first mortgage as well. If that is not possible in your RRSP, then you have zero ability to enforce any mortgage payments.

SC, it can only be mortgages, not any other type of loan.

There is also not an SM version of an RRSP mortgage. It can only be a conventional mortgage, not a readvanceable mortgage.

While it may sound good, you can essentially always do better by getting the lowest possible mortgage rate and investing your RRSP effectively. Even if you only use if for the fixed income part of your RRSP, it is still not affetive.

Today, you can get a mortgage at 3.5% or less and you can buy a long term bond at a better rate. This makes more money than an RRSP mortgage, plus avoids high setup and annual fees. And of course, you can probably invest better than just having a bond.

Ed

I am looking for advisor or lawyers in toronto who can assist me with setting up of the procedures and paperwork to borrow from my RRSP for a 2nd mortgage…
can anyone give me some references..

thanks
Alnasir