# Feeback : Using RRSP Mortgage for Investment Property



## $teve (Apr 5, 2009)

I would like some feedback concerning the possibility of using my RRSP as a mortgage for purchasing a rental property. 

I am in my mid 40's, 2 kids 10,12 . My mortgage is paid-off and both my wife and I have a combined RSP value of about $400K all with TD. Unfortunately, they are in a variety of different accounts, three of them being LIRA's. 

I am considering buying a Condo. For argument sake let's say I use $200 K from the registered account and I would use $50 K unsheltered cash as a down payment to minimize the CMHC insurance fee. We would then rent the Condo for 10-15 yrs and eventually move into it once the kids are out of the nest.

I see may upsides such as paying yourself the mortgage interest, tax deductable interest payments and rental income. 

I am looking for feedback from anybody who has tried this or may have consider this scheme but decided against it. I have informed myself of the heavy up front fee structure as well. 

I am also not sure whether I can pool my LIRA accounts to use the available funds. 

Thanks in advance for your input. 

Steve


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## MoneyGal (Apr 24, 2009)

Good question. 

I do not think (in fact, I'm almost certain) you would be able to "pool" LIRAs to invest in a mortgage (hence the "locked in" name). More likely you would need to set up individual mortgages which correspond to each LIRA - which would probably destroy any cash advantage. 

The other problem I anticipate is that it is difficult to find a financial institution who is willing to set up a mortgage inside a LIRA because of the administrative complexities. 

Depending on the source of the monies and your province/territory of residence, the accounts will be regulated either by OFSI (for federal monies) or the financial services commission of your province/territory. 

It is difficult to find a bank willing to allow you to hold a mortgage in a "regular" RRSP; I suspect in practice you would not be able to find a financial institution willing to allow you to hold multiple mortgages in several LIRAs - except possibly at punitive rates.


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## Dana (Nov 17, 2009)

Steve, since your residence is mortgage free, have you considered leveraging against it to purchase the condo?


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## andrewf (Mar 1, 2010)

I think that's a better idea. Then you're also left with a more diversified overall portfolio. Then again, having a house+condo will likely make you heavily weighted in real estate.

If your assets are as follows:

$500k real estate (house)
$400k equities

You're currently at about 55% real estate in your investment portfolio.

If you buy the condo with a HELOC on your house for down payment and mortgage on the condo, you'll be at:

$750k real estate (house+condo)
$400k equities
-$250k debt/bonds in which case you'll have a net position of 750/(750+400-250)=750/900 = 83% in real estate.

I'd say you'd be better of with some leveraged investment in equities in terms of diversification.


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## Taxsaver (Jun 7, 2009)

Is this you guys are talking about? An article published last Friday.

http://www.theglobeandmail.com/glob...ing-a-return-on-your-mortgage/article1815416/


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## $teve (Apr 5, 2009)

Thanks for your input 

Taxsaver , yes that is where I got the idea from. 

AndrewF, yes I agree that it does put a heavy portfolio weight on real estate and that is something to consider. However with my current level of registered savings I was going to put a much greater emphasis on income/bonds/REITS anyways within the RRSP. 

Dana , yes the freed up portion of the HELOC is an option, but why pay the interest to the bank when you can pay it to yourself.


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## GeniusBoy27 (Jun 11, 2010)

I looked into this about 6 months ago and decided against it, because my banker was unwilling to do it (because of the paperwork involved without charging a high-up front fee). To me, when I worked out the numbers, it wasn't worth it when you factor in the PITA (pain in the ...) component.


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