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Does Having a Self-Directed RRSP Mortgage Make Sense ?

Aug. 12, 2014
3 mins
Couple in modern living room at home

Having a sizeable self-directed RRSP account is not only a source of comfort and security for your retirement years -- it can be a solid vehicle to pay off your mortgage by making payments to yourself and not the bank.

That's correct. The Self-Directed RRSP Mortgage does actually exist and if you have sufficient funds, it allows you to make regular mortgage payments to yourself rather than paying the principal and interest to a bank or other lender.

Generally, you'll require a sufficiently large self-directed RRSP with funds in excess of $100,000 and pay out a host of fees to set up and administer the mortgage, which must be paid back over time in much the same fashion as a regular mortgage.

An approved lender under the National Housing Act must administer the mortgage and the interest rate and payment terms will reflect conventional commercial practice, plus it has to be insured by Canada Mortgage and Housing Corporation or another private mortgage insurer.

If that doesn't deter you perhaps the fee structure might. Be prepared to pay a one-time fee of about $300, a one-time legal fee of about $500, an administration fee ranging between $100 to $200 plus the normal fee of about $125 for a self-directed RRSP, and an appraisal fee.

Realize that if the down payment on the house or condo is less than 25% of the value of the property, you have to take out mortgage insurance. Currently, that could cost you from 1% to 2% of the mortgage each year. As an example, the insurance payment for a $300,000 mortgage with the rate set at 2% works out to $6,000 annually.

To sum it up, the Self-Directed RRSP will essentially hold the mortgage on your home and the owner of the RRSP will make regular interest and principal payments to the RRSP but without taxable/contribution benefits. You'll definitely want to discuss the financial drawbacks and risks with an expert. For example, there may be better investment opportunities and more lucrative returns to be gained with your registered savings rather than allocating a very large sum towards a mortgage.

Still the appeal of paying yourself and not a bank towards home ownership is bound to put a smile on your face, right?

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