Putting your mortgage in an RRSP

Q – Can you explain what are the advantages of putting one’s own mortgage in a self-directed RRSP? I understand the dollars taken from the RRSP to fund the mortgage can be invested elsewhere on an unregistered basis and owner of the plan would then make payments back to the plan until the mortgage is paid off. Suppose the plan holder, for whatever reason, can no longer make payments and isn’t able to pay off the mortgage? Does such a mortgage have to be insured by CMHC?

I would appreciate any advice or clarification you can provide.

A– The rules governing RRSP mortgages are very tight. The mortgage must be NHA-insured (which is expensive) and the terms must be competitive with those in the general marketplace (no artificially low interest rates). The RRSP money must be invested in the mortgage, not elsewhere. If the homeowner can no longer make payments to the RRSP, and the mortgage insurance wasn’t adequate, the plan can foreclose (just like a bank) which would create the strange position of your RRSP taking your home from you and putting it on the market under power of sale. I’ve never actually heard of it happening, but those are the rules.

Advantage The satisfaction of, in effect, paying your mortgage interest to yourself and the certainty of the return. Disadvantages are the high costs involved and the relatively low rate of return for your RRSP.

There is a full chapter on this subject in Gordon Pape’s 2000 Buyer’s Guide to RRSPs. G.P.