Using RRSP to pay down the mortgage

Q – The situation is that I would like to maximize the value of my home and use it to my advantage. The home was purchased for $249,000 and recently evaluated at $375,000.  At that time, I refinanced the home to consolidate and pay debt and for an RRSP contribution.  I now have an outstanding mortgage of $200,000 and an RRSP fund of approximately equal value. Can the RRSP be used to buy out the mortgage and the money paid back over time into the RRSP? Or is an RRSP contribution towards home  ownership restricted to first time buyers only? – L.E.

A – You cannot withdraw money from your RRSP to pay off an existing mortgage. The Home Buyers’ Plan only allows interest-free RRSP loans for first-time buyers (although that definition is quite broad). In that case, up to $10,000 per spouse can be borrowed.

You could, however, set up an RRSP mortgage using the money in your plan for that purpose. You would then make mortgage payments to your RRSP (however, these would not be tax-deductible since they are not contributions as such.) The rules for doing this are quite complex, however. You may want to read t chapter on this subject in Gordon Pape’s 2002 Buyer’s Guide to RRSPs, which is available in all bookstores. – G.P.