A large majority of people borrow from banks and lenders to
fund their mortgages. But there is another source you can use to finance your
mortgage – the money in your RRSP (Registered Retirement Savings Plan).
Calgary investment advisor Mike Wise says that people are
increasingly showing an interest in using their RRSP dollars to purchase real
estate (reported in a Globe
and Mail article). Such an investment strategy makes sense when the
interest rate on your mortgage is higher than the return on investment
generated from your RRSP or term deposits. In fact, conservative investors who
earn less than 4% from their retirement investment can be assured of better
returns than from an RRSP-mortgage investment.
When you go for an RRSP mortgage funding, you should
negotiate for a higher interest rate, the exact opposite of what you do when
you negotiate a conventional mortgage. This is because you are not paying
interest to the mortgage
lender or bank, but to yourself. Mr. Wise also said that you can also use
the mortgage payments going into your RRSP to invest in stocks. There are some things you should know before you embark on
an RRSP-mortgage strategy. While some banks allow the use of RRSP funds to invest
in a residential property, others may only allow this for a residence occupied
by an owner. Fees to set up the mortgage, yearly mortgage administration fee
and legal fees are some expenses you should keep in mind. Regardless of how
much equity you have in your home, you will require mortgage default insurance
when you invest your retirement money in your mortgage.
