Q&A: Mortgage in RRIF
Question: Four years ago, I bought a house and gave myself a mortgage from my RRIF at 6.05%. Being my own lender, the monthly payments are linked to the minimum withdrawal and both the principal and interest go back into my RRIF. Next year the mortgage is to be renewed at the then current interest rates. If they are as low as they are now, the earnings will be less than the minimum withdrawal. Will it therefore take much longer to pay off the mortgage?
According to my bank not many people are aware that this can be done and it is a relatively safe investment, since you pay yourself. – R.P., Ontario
Gordon Pape answers: You need to be careful here. If most or all of your RRIF is tied up in the mortgage and the repayment is less than the minimum withdrawal requirement, where will the RRIF get the cash to meet the payout that must be made to you? I’m sure the bank will take this into account in calculating the repayment but you need to be sure.
A more basic question is why are you doing this? It sounds like you are putting money into the RRIF to meet the mortgage payment and then taking it out again as taxable income. Doing it this way means you are paying a hefty fee to hold the mortgage inside the plan. I suggest you look at taking out a conventional mortgage when the term is up next year and paying off the RRIF mortgage with the proceeds. Use the RRIF withdrawals to make the mortgage payments. The on-going costs should be much less.
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