Hold a Mortgage in Your Retirement Plan

Many people have two main investments: a home and retirement savings, the latter usually in either a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF).

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Q. Can I use my RRSPs for the Home Buyers Plan at the same time as the Lifelong Learning Plan?

A. Yes, you can participate in the Home Buyers’ Plan, even if you have withdrawn funds from your RRSPs under the Lifelong Learning Plan and you have not yet fully repaid the balance owed.

Source: Canada Revenue Agency

The natural question then is whether you use those retirement plans to buy a home or other property? The answer is a qualified yes, under two circumstances.

1. Direct Purchase

If you have an RRSP, you can take advantage of the Home Buyers Plan and withdraw a maximum of $25,000 to buy a home (RRIFs are not eligible).

To participate in the Home Buyers Plan you must meet certain qualifications:

  • Unless you are disabled, you must be a first-time homebuyer. That means you or your spouse cannot have owned and occupied a home as a principal residence in the five years preceding the RRSP withdrawal.
  • You must have entered into a written agreement to build or buy a qualifying house before withdrawing the funds, and you must actually buy or build the house prior to October 1 of the year following the withdrawal.
  • Your Home Buyer Plan balance on January 1 of the year of withdrawal must be zero.
  • Neither you nor your spouse can own the home more than 30 days prior to the withdrawal being made. Also, you must make all of the withdrawals in the same calendar year.
  • You cannot buy a rental property or any other property that is not your principal residence.

2. Holding a Mortgage

Qualified investments in RRSPs and RRIFs include mortgages. So you can hold a mortgage inside your retirement plans and access more than the Home Buyers Plan maximum. However, you must meet the following strict requirements:

  • A lender approved under the National Housing Act must administer the mortgage. This includes most banks and credit unions, and many trust companies. The cost for this service varies, but typically is at least several hundred dollars a year.
  • You must insure the loan under the Canada Mortgage and Housing Corporation (CMHC) or through a private insurer licensed under the National Housing Act. The insurance may cost 2.9 per cent or more of the mortgage amount.
  • The amount of the mortgage payment, interest rate, and other terms of the loan must be in line with normal commercial practice. The interest rate must match rates in the market and other terms must match mortgages from financial institutions.

This approach does have a couple of disadvantages, including:

  • The extra cost and paperwork involved may make it unattractive.
  • Mortgages in your retirement plan may generate less income than other investments. If you would ordinarily hold investments yielding higher returns, the lost income could amount to a considerable sum over the term of the mortgage.

If you think that you want to hold your mortgage in your RRSP or RRIF, consult with your accountant to help determine the costs and how the restrictions might affect you.

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