Q: I heard that I could take money out of my RRSP tax free and put it on my house or buy real estate with it. Is that really true? Would it not mean the money is deregistered and taxable?
A: Yes, you can grant yourself a mortgage from your RRSP and place it on your house -tax free. No, you cannot take money out of your RRSP and buy real estate with it.
In Canada, the two ways you can take money out of your RRSP for investment (without attracting immediate taxes) are:
– You can invest in any Canadian company, even one not found on the stock market.
– You can also put either a first or second mortgage on your own house. You need to get an appraisal; you need to set up a self-directed RRSP with a financial institution that has a trust arm. You need to charge yourself the current CMHC rate.
There are also costs: Setup fee, annual fee and -the big one -CMHC insurance. This insurance could be from 0.4 per cent to three per cent, depending on what your mortgage to value ratio is.
Why would you do it?
– You could use the cash wisely
– Keep the interest you would pay on your mortgage for yourself.
– You have the option of setting the interest rate to the highest allowable at the time -and get forced savings.
– You have certainty. You know what your RRSP is invested in. The predictable growth of the RRSP may be what your personality needs … particularly if some of your investments in the RRSP have not worked out.