RRSP Mortgage

What is the best strategy to Pay off your Mortgage ? What about that RRSP ?

2011-03-18T11:31:00.000-07:00

One of the best strategies for paying off your mortgage quickly is to increase your Mortgage Payments as well as the frequency of payments, ie: bi-weekly rather than monthly. If you can max out your Mortgage Payments and also make lump sum payments to the Mortgage (without penalties) you can pay it off in about half the time. Only problem is where do you get all that extra cash for extra payments ? Is there anywhere you have a big chunk of money just sitting there ? Well, maybe. How about that RRSP ? .... but you can't access that until you retire ?

A few years ago I went into the nearest TD Branch and asked that question. Reluctantly the Mortgage Specialist told me of a way I could access my RRSP funds to pay off my Mortgage completely, without penalty, and pay myself the Interest rather than the bank. It's called a Self-Directed RRSP-Mortgage. Since I had an amount equal to my Mortgage sitting in my RRSP (and losing money in Mutual Funds) I decided to do some research and see if this could really work. There were some costs involved. I needed a Lawyer to help me with the Discharge of the existing Mortgage and set up a new RRSP-Mortgage that I would pay back (TO MYSELF) over the next 20 years. I set the terms of this RRSP Mortgage so that I would be paying back the Principal plus 8% Interest to MYSELF, and not the bank. I was also able to reduce the monthly payments (To MYSELF) so that I would have more cash on hand. This maximizes the amount I'll have in my RRSP at the end of the 20 year Payment Term. Luckily I did this before the Market crash in 2008 and made better use of my RRSP Savings. You can learn more about this from TDCanadaTrust.ca

RRSP Deadline was March 1st. Now, how about that RRSP Mortgage ?

2011-03-03T09:24:00.000-08:00

An RRSP Mortgage is a way for you to pay off your Mortgage completely using the funds you have in your RRSP - Registered Retirement Savings Plan. Did you know that you can access more than the $ 25 K Limit ? If you owe 100 k on your Mortgage and you have $100 k in your RRSP you can pay off your Mortgage completely, then pay yourself back + Interest. More information on the following article.

What's an RRSP Mortgage ?

2010-02-16T13:04:00.001-08:00

As soon as your RRSP equals the amount you owe on your mortgage - you can set up what is called a Self Directed RRSP Mortgage and use the RRSP to completely pay off the mortgage.
You then set up a plan to pay back your RRSP over the next 25 years. And here is the best part - you pay interest on the RRSP Mortgage to yourself - not the bank.

For example, if you set up a 10 year RRSP mortgage ammortized over 25 years you can be paying yourself 8% interest - back into your RRSP. If you invest the monthly payments into a GIC at 4% - It's like making 12% compounded interest on your RRSP.
This type of Mortgage can only be set up through a Self-Directed Plan such as with TDWaterhouse.
There are legal fees (about $600) to discharge your current mortgage as well as CMHC Insurance on the new RRSP Mortgage.(minimal) + an annual plan fee of $200. But if you consider what you are saving on monthly interest payments to the Bank (ie:6% x $100,000 = $6,000/yr) You are way ahead.

This concept works especially well when your mortgage is over $100,000 and you have 25 years before you will need your RRSP.

Of course you "could" do better (or worse) in the Stock Market - but where can you earn 12% on a $100,000 investment without any risk. All Interest payments go to you rather than the Bank. The RRSP Mortgage is a well kept Secret. And now you know why....