Mortgage in a RRIF?

Zoomer | January 1st, 2006

Question: I took early retirement at 55. We are mortgage clear, but are now looking to purchase in the area we wish to retire. I was planning on drawing the minimum from my RRIF as our other pension plans should be more than sufficient at age 65 but I read that your RRIFs can be used to invest in your own mortgage. Do you advise using your RRIF for this? Could you clarify.

Answer:

Holding individual mortgages in a RRIF can be tricky and expensive. If the mortgage is on your home or a family member’s, set-up costs will be high. If it’s a third party mortgage obtained through a mortgage broker, there may be fees to pay. Also, some mortgage brokers have run into financial difficulties, resulting in large losses for investors, so you have to be careful.

Mortgages also don’t provide much in the way of return when interest rates are down, although the rate of return on a mortgage will usually be higher than from a GIC. But you have to decide whether the cost, the risk, and the hassle are worth the effort. Also, remember that a mortgage will tie up your capital, which might be a problem. As well, check to see your financial institution will allow you to dohis some won’t.