Comments on: Holding your own mortgage inside your RRSP http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/ A personal finance blog written by Preet Banerjee Wed, 08 Sep 2010 22:54:22 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Rod http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-6696 Rod Thu, 26 Aug 2010 14:01:29 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-6696 badmath, True. But I am placing $13,284 into my RRSP mortgage every year where my RRSP contribution limit is normally $0 due to my Pension plan. If I continue to earn about 4% on my monthly contribution I'll have $163,548 at the end of 10 years where I otherwise would have had $ 0 (new contributions into my RRSP) If I were to risk those contributions on the Stock Market I could gain more, or less. Since 2007 I have done better to stay in GIC's (although I have purchased some Apple ) If I had kept my regular Bank Mortgage I would have paid 3 % interest (now increasing) on $150,000 (diminishing) each year to the Bank. badmath, True.

But I am placing $13,284 into my RRSP mortgage every year where my RRSP contribution limit is normally $0 due to my Pension plan.

If I continue to earn about 4% on my monthly contribution I’ll have $163,548 at the end of 10 years where I otherwise would have had $ 0 (new contributions into my RRSP) If I were to risk those contributions on the Stock Market I could gain more, or less. Since 2007 I have done better to stay in GIC’s (although I have purchased some Apple )

If I had kept my regular Bank Mortgage I would have paid 3 % interest (now increasing) on $150,000 (diminishing) each year to the Bank.

]]> By: badmath http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-6138 badmath Wed, 21 Jul 2010 17:36:11 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-6138 Rod, I'm afraid to tell you your math is flawed. First off, you are not earning 4-5% on the entire $150k, just on the payments you make. So you cannot add 4-5% to 7.75% to get your total return. Secondly, you are not earning 7.75% on $150k for the next N years because as a mortgage payer you do not continue to pay interest on $150k for the life of the mortgage, you only pay interest on the remaining principal. So essentially as you pay off principal (to yourself) you are converting RRSP investment A at 7.75% into RRSP investment B at 4-5%. That's a bad thing, not a good thing (from your RRSP's point of view). Rod, I’m afraid to tell you your math is flawed.

First off, you are not earning 4-5% on the entire $150k, just on the payments you make. So you cannot add 4-5% to 7.75% to get your total return.

Secondly, you are not earning 7.75% on $150k for the next N years because as a mortgage payer you do not continue to pay interest on $150k for the life of the mortgage, you only pay interest on the remaining principal.

So essentially as you pay off principal (to yourself) you are converting RRSP investment A at 7.75% into RRSP investment B at 4-5%. That’s a bad thing, not a good thing (from your RRSP’s point of view).

]]> By: Rod http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-142 Rod Tue, 16 Feb 2010 20:59:00 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-142 We did this with a $150,000 mortgage and pay it back at 7 3/4 interest - I then invest the $1,000 RRSP Mortgage payment into 4-5% GIC - so I'm making almost 13% interest. I'll double my RRSP every 6 years.... I set this up through TD CanadTrust. Very happy I did this before the Market collapsed in 2008. We did this with a $150,000 mortgage and pay it back at 7 3/4 interest – I then invest the $1,000 RRSP Mortgage payment into 4-5% GIC – so I’m making almost 13% interest. I’ll double my RRSP every 6 years…. I set this up through TD CanadTrust. Very happy I did this before the Market collapsed in 2008.

]]> By: Chris http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-141 Chris Thu, 21 Jan 2010 17:24:24 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-141 I have 200K in my RRSP and 720K left on my mortgage (home is worth 1.1). My bank is offering me 6.5% if I transfer over my 200K in RRSP and convert it over to RRSP mortgage. I am thinking that I no longer have to pay 4.5% interest on the 200K mortgage, plus I am paying myself 6.5% effectively gaining 11%. Is my thinking on track here or am I misssing something? Thank you I have 200K in my RRSP and 720K left on my mortgage (home is worth 1.1). My bank is offering me 6.5% if I transfer over my 200K in RRSP and convert it over to RRSP mortgage. I am thinking that I no longer have to pay 4.5% interest on the 200K mortgage, plus I am paying myself 6.5% effectively gaining 11%. Is my thinking on track here or am I misssing something?

Thank you

]]> By: rick http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-140 rick Sun, 27 Dec 2009 14:55:21 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-140 I believe the strategy may also lose effectiveness after one has enough cash in non-rrsp savings to pay off the mortgage. Otherwise, while you continue to beef-up your rrsp spending after tax dollars, (without any of the same tax benefits that standard rrsp contributions receive) one is taxed again when withdrawing from the rssp. so perhaps better to pay-off and use the monthly payments to invest in securities that offer dividend tax credits and capital gains tax benefits vs a double taxation situation? I believe the strategy may also lose effectiveness after one has enough cash in non-rrsp savings to pay off the mortgage. Otherwise, while you continue to beef-up your rrsp spending after tax dollars, (without any of the same tax benefits that standard rrsp contributions receive) one is taxed again when withdrawing from the rssp. so perhaps better to pay-off and use the monthly payments to invest in securities that offer dividend tax credits and capital gains tax benefits vs a double taxation situation?

]]> By: James http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-139 James Fri, 25 Dec 2009 23:19:21 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-139 I have a question about the insurance premium. My house is worth about 350k. I owe 60k. I have 60k in RRSP. I will qualify for the 0.5% interest premium. will the premium be o.5% of the 60k or 0.5% of the 350k. the other question.... is the insurance premium paid 0.5% annually or is it a one time fee. I have a question about the insurance premium.

My house is worth about 350k. I owe 60k. I have 60k in RRSP.

I will qualify for the 0.5% interest premium. will the premium be o.5% of the 60k or 0.5% of the 350k.

the other question…. is the insurance premium paid 0.5% annually or is it a one time fee.

]]> By: Perry Crann http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-138 Perry Crann Tue, 20 Jan 2009 02:33:59 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-138 I have been considering doing this for a while. Thanks for the additional information. I have been considering doing this for a while. Thanks for the additional information.

]]> By: Preet http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-137 Preet Tue, 20 Nov 2007 04:05:42 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-137 <p>That is an excellent way to structure your investments - and good advice for others.</p> That is an excellent way to structure your investments – and good advice for others.

]]> By: Qcash http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-136 Qcash Mon, 19 Nov 2007 06:42:24 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-136 <p>WDAMMG</p><p>I now look at the asset allocation of my entire portfolio of assets and consider the RRSP my "fixed income" component.</p><p>That way I put my growth and divident assets outside my RRSP.</p><p>So if my RRSP is 20% of my net worth and it is all "fixed income" then my fixed income is now 20% and that is where I am comfortable.</p><p>Q</p><p>PS Love your blog --- added it to my daily read.</p> WDAMMG

I now look at the asset allocation of my entire portfolio of assets and consider the RRSP my "fixed income" component.

That way I put my growth and divident assets outside my RRSP.

So if my RRSP is 20% of my net worth and it is all "fixed income" then my fixed income is now 20% and that is where I am comfortable.

Q

PS Love your blog — added it to my daily read.

]]> By: Preet http://wheredoesallmymoneygo.com/holding-your-own-mortgage-inside-your-rrsp/#comment-135 Preet Sat, 17 Nov 2007 04:11:53 +0000 http://symbiantcapital.com/2007/11/13/holding-your-own-mortgage-inside-your-rrsp/#comment-135 <p>Hi Q - thank you for the additional insight.</p><p>You are quite right - the payments made to the RRSP mortgage can be used to invest in other types of investments.</p><p>Sorry, I didn't mean to leave the impression that you shouldn't have 100% of your RRSP as a mortgage in all situations - but rather to consider your asset allocation when choosing how much to hold.</p><p>Thanks for your comments! :) Especially about the rental property - that is a GREAT point.</p> Hi Q – thank you for the additional insight.

You are quite right – the payments made to the RRSP mortgage can be used to invest in other types of investments.

Sorry, I didn’t mean to leave the impression that you shouldn’t have 100% of your RRSP as a mortgage in all situations – but rather to consider your asset allocation when choosing how much to hold.

Thanks for your comments! :) Especially about the rental property – that is a GREAT point.

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