BobBob
Senior Member
I do a bit of both; my mortgage payments made me the conservative tax/risk-free 4% last year, and my RRSP (in a balanced mutual fund) made me -20%.
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The best investment? Paying off your mortgage (G&M)
- Thread starter Yossi Kaplan MBA
- Start date
rbt
Senior Member
I'm curious as to how you managed to set this up. Isn't an RRSP supposed to be arms length? So you surely didn't directly issue yourself the mortgage, nor could you have setup a corporation from RRSP funds to do it (looked into that once).
Thanks in advance for advice.
MatrixElement
Active Member
This subject crops up every once in a while in personal finance forums. It's perfectly legal to hold your own mortgage in your own RRSP but there are established rules and procedures governing the process. Off the top of my head, you need a bank to set up some sort of trust or trust-like entity and administer the process, for which they of course charge a setup fee plus annual maintenance fees. You can't charge yourself any old interest rate, it has to be a fair market rate (I'm not sure how much wiggle room there is in determining what exactly counts as fair market rate.) I believe you have to buy CMHC insurance no matter how big the down payment. Most importantly, you can't default on yourself without consequence. If you default, the trustee has to pursue you as vigorously as they would a non-related creditor. This could lead to the odd situation of you foreclosing on yourself, a bit like the Queen signing her own death warrant! This sounds weird, but is to prevent a scam where you put money in your RRSP, get a big tax refund, "lend it to yourself" for the mortgage to buy a house, then sell the house for cash, then neglect to pay it back to your RRSP, which would effectively be a way to withdraw from your RRSP tax-free.
For an example of fees from Scotiabank, see "Non-arm's length mortgage investment fees" at bottom of page 2 of http://scotiabank.com/cda/files/smdi/fees_20090805_e.pdf, which appears to be $300 one-time setup plus $60 and $175 annual admin fees.
Lots of google articles.
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tempperm
New Member
beaconer
Active Member
Smith Manoeuvre vs RRSP Mortgage
The Smith Manoeuvre is a different a set up (ie. making your mortgage tax deductible) but same in the sense that you are using your savings to 'invest' in your property.
Correct me if I'm wrong, but from what I've read about the Smith Manoeuvre in the past, for the Smith Manouvre to work, you have to make a higher rate of return in the market, than what you borrowed your own money at, so there is a spread rate you need to achieve. So there is risk involved.
An RRSP mortgage is a guaranteed rate of return (assuming that you can guarantee to make your mortgage payments). The rate of return is higher than the money markets, higher than GICS.
An RRSP mortgage must be held in a self directed RRSP, yes there are associated fees, and it is not a retail product that is readily advertised, or that a whole lot of investment advisors have a lot of product knowledge about. There is a lot of leg work involved, and follow up. The bank does not make a whole lot of money off of it, so they don't have a whole lot of incentive to be helpful.
Most articles that talk about RRSP mortgage say that it is not a good investment if you think you can beat your interest rate investing in the market.
However, I see it a bit differently, based on the way I invest, and my comfort levels.
An RRSP is a conservative investment, and you are guaranteed your return and you can plan around that. There is also a trememdous amount of security knowing that you 'own' your own mortgage, and that the payments you make are not going to the bank, and your payments literally is a transfer of $$ from one pocket to another. There is no rush to pay off your mortgage..
Having invested so long in mutual funds, stocks, etc, with dollar cost averaging, monthly payments, and lump sum payments throughout the year, I find it impossible to track my real rate of return, year after year.
Also, making money in the market is a gamble, unless you really know what you are doing, or following the market very closely. Even then, nothing is a sure bet. some of the more conservative investments in the market, ie. like a coach potato portfolio, still got whacked in the downturn..
Perhaps another generality:
In a bear market or during times of instability (now), a conservative investment like an RRSP mortgage makes more sense.
In a bull market, where 10% returns are not uncommon, perhaps it makes more sense to leave it in the market (although, I have chosen not to anymore, the downturn has got me out of the market for good!)....
The Smith Manoeuvre is a different a set up (ie. making your mortgage tax deductible) but same in the sense that you are using your savings to 'invest' in your property.
Correct me if I'm wrong, but from what I've read about the Smith Manoeuvre in the past, for the Smith Manouvre to work, you have to make a higher rate of return in the market, than what you borrowed your own money at, so there is a spread rate you need to achieve. So there is risk involved.
An RRSP mortgage is a guaranteed rate of return (assuming that you can guarantee to make your mortgage payments). The rate of return is higher than the money markets, higher than GICS.
An RRSP mortgage must be held in a self directed RRSP, yes there are associated fees, and it is not a retail product that is readily advertised, or that a whole lot of investment advisors have a lot of product knowledge about. There is a lot of leg work involved, and follow up. The bank does not make a whole lot of money off of it, so they don't have a whole lot of incentive to be helpful.
Most articles that talk about RRSP mortgage say that it is not a good investment if you think you can beat your interest rate investing in the market.
However, I see it a bit differently, based on the way I invest, and my comfort levels.
An RRSP is a conservative investment, and you are guaranteed your return and you can plan around that. There is also a trememdous amount of security knowing that you 'own' your own mortgage, and that the payments you make are not going to the bank, and your payments literally is a transfer of $$ from one pocket to another. There is no rush to pay off your mortgage..
Having invested so long in mutual funds, stocks, etc, with dollar cost averaging, monthly payments, and lump sum payments throughout the year, I find it impossible to track my real rate of return, year after year.
Also, making money in the market is a gamble, unless you really know what you are doing, or following the market very closely. Even then, nothing is a sure bet. some of the more conservative investments in the market, ie. like a coach potato portfolio, still got whacked in the downturn..
Perhaps another generality:
In a bear market or during times of instability (now), a conservative investment like an RRSP mortgage makes more sense.
In a bull market, where 10% returns are not uncommon, perhaps it makes more sense to leave it in the market (although, I have chosen not to anymore, the downturn has got me out of the market for good!)....
nammer21
New Member
You get to write off the interest as a tax deduction, so you have to take that into account as well.
js97
Senior Member
Here is better advice,
if you can't afford your mortage payments at 25 years, don't extend it to 35, get a smaller mortgage/property.
if you can't afford your mortage payments at 25 years, don't extend it to 35, get a smaller mortgage/property.
EXgeMMy
Active Member
I actually worked with Tharana and all the things he said are 100% true.
That guy worked like a maniac and he lived in an edit bay. He worked REAL hard, worked long hours. Worked so long he didn't have time to spend his $.
He really did walk everywhere and he did all his socializing at work.
Great guy, really happy for him.
His dad's record business is actually named after him in Sri Lanka.
That guy worked like a maniac and he lived in an edit bay. He worked REAL hard, worked long hours. Worked so long he didn't have time to spend his $.
He really did walk everywhere and he did all his socializing at work.
Great guy, really happy for him.
His dad's record business is actually named after him in Sri Lanka.