The Non-Arm’s Length Mortgage is a strategy that works when a) individuals have RRSP investments that exceed the balance remaining on their mortgage b) are comfortable with the paperwork, fees, and risks involved and c) don’t mind losing the potential to higher rates of return on their investments.
This strategy is ideal for home owners with a conservative portfolio of investments who are motivated by the idea of paying principle and interest payments to themselves instead of a financial institution.
The procedure involves:
– Selling the investments within your RRSP for cash (tax free)
– Using a trust company to create and administer a new private mortgage within your RRSP
– Paying off your existing mortgage with the cash from your RRSP
The fees include:
– Setup and annual charges
– Mortgage insurance (required)
If your mortgage is at 3% and your RRSP investments are averaging 7% then you are better off in your current situation, however, if you expect mortgage rates to keep rising and investment returns to fall, this strategy may start to look very appealing… especially if you trust yourself to pay down your own mortgage.
