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GOOD news is that we are living 20 years longer.
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Mortgage Your Own Property - A Different Kind of RRSP Investment

Kody Wilson, CPA, CA

Have you ever considered the possibility of lending yourself money in the form of a mortgage on a property you own? Say you were purchasing a house for $400,000 and you had $150,000 to put down on the property. You would still need to borrow $250,000 from somewhere, traditionally a bank, to pay the rest.

What if you had enough money invested in your Registered Retirement Savings Plan (RRSP) to cover the remaining cost? Legally, an RRSP cannot own a piece of real estate; however, an RRSP can lend money, in the form of a mortgage, for a piece of property.

It just happens that a lot of people are not aware of this option.

The only caveat is you will need to have a self-directed RRSP, which means you are responsible for all of the investments that take place within the account. Alternatively, you could hold a self-directed RRSP for the mortgage investment and a traditional RRSP for other investments.

You will want to discuss this option with your financial advisor.

There are strict guidelines you must follow if you decide to go this route. For instance:

• The mortgage must be administered by an approved lender (not all banks will do this);
• The interest rate must be in line with the standard rates at the time; and
• The mortgage has to be insured by Canada Mortgage and Housing Corporation.

If this just sounds exactly like a regular mortgage, you are right. It is set up like any mortgage from a financial institution would be, with the exception of the fact you make the payments to yourself (through your RRSP) and you get to keep the interest.

As with any financial decisions, there are pros and cons.

Some of the pros include:

• You keep all the interest;
• Protection from rising rates;
• Guaranteed investment return; and
• Interest and principal payments don’t count as RRSP contributions.

Some of the cons include:

• The fees associated with taking out a mortgage against your RRSP;
• The large RRSP holdings requirement; and
• The risk of losing out on other RRSP investment opportunities which may provide a better return over the course of the mortgage period.

There is no question it was more beneficial to hold a mortgage when the interest rates were higher than today. However, it can still be a useful tool if you are taking out a large mortgage or worry about rising rates.

Taxpayers may also wish to provide an RRSP loan to an unrelated third party, as opposed to loaning themselves the money. This option has different risks and restrictions that should be considered prior to implementation.

Speak with your advisor to discuss the advantages and disadvantages of RRSP mortgages as they pertain to your specific situation.

Kody is a supervisor at Westboro accounting firm GGFL. You can follow the firm on Twitter @GGFLCA and visit them online at www.ggfl.ca.

For all your real estate needs visit www.bennettpros.com

5 Reasons Why You Should Open an RRSP

The RRSP or the Registered Retirement Savings Plan is a Canadian account registered with the federal government and the accounts characteristics are based on holding investment assets and savings. The RRSP was first introduced in 1957 to encourage employees to save for their retirement. However, there are certain rules and regulations that determine the timing of the contribution, the tax credit, the claim of the contributing value, the asset allowed, the maximum contribution and the conversion to RRIF (Registered Retirement Income Fund) during retirement.

There are a lot of benefits of having an RRSP as a savings options for retirement and here a just a few:

Tax Deductions on Contributions

Your RRSP contribution is basically a claim for a deduction on your tax returns. For instance, you’re positioned on the top tax bracket and every $1,000 that you contribute decreases your tax amount by approximately $460. However, if you find yourself with lower income, in a year you can carry forward your deductions for your contribution to the next year when your income increases. This way even though you would be in a higher tax bracket your tax savings would be greater.

Tax Free Savings

As long as your investment earnings stay within the RRSP you won’t have to pay any tax. Instead this investment earning is tax free; since it is compounded, your savings increase much faster.

Converting Your RRSP to Regular Payments during Retirement

If you’re looking for regular payments then you can convert your RRSP tax free savings into an annuity or a Registered Retirement Income Fund (RRIF) which pays out regular payments when you retire, but you’ll have to pay tax on the regular payments that are made.

Reducing Your Combined Tax Payment by Opting For a Spousal RRSP

If you’re thinking about helping your spouse with their tax free savings account, you can easily contribute especially if you earn more than your spouse. The both of you can go for a spousal RRSP, where on retirement the amount will be split equally amongst you two and thus reduces the total tax amount that you have to pay.

To Pay For Your Home or Education You Can Borrow From Your RRSP

If you’re thinking about borrowing money from your RRSP, you can take out up to $20,000 for the payment of yourself or your spouse’s education according to the Lifelong Learning Plan (LLP). You can borrow up to $25,000 as a down payment for your home according to the Home Buyers Plan (HBP). You won’t have to pay any tax.

If you already have an RRSP and it is not performing, the Bennett Team has a great program that can use your RRSPs to invest in real estate and generate a 8% secured annual return - that's better than any bank at the moment! Are you tired of loosing money in your RRSPs or STRESSED about your retirement visit www.bennettpros.com for details on this innovative program.

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