Right now, your house is the best piggy
bank you’ll ever own. If you’ve got some money in that piggy bank, you may want
to take some out for your RRSP. The RSP season is upon us, and Canadians are
going through their annual head-scratching – how to maximize contribution room
and even catch up on mounds of unused room. Markets seem to be coming back,
house valuations have climbed, and mortgage rates are still at historic lows.
“Carpe diem”, as they say: seize the day.
This year, you can top up your RSP with some
of the cheapest money in history: a mortgage. Even if your mortgage isn’t
scheduled for renewal any time soon, it may be worth your while to make a visit
to an independent mortgage professional, who can offer you a comprehensive
analysis of your options. With today’s rock-bottom rates, it may still pay to
refinance your existing mortgage.
Canadians are a cautious lot when it
comes to finances, and we typically don’t like to borrow money. But it deserves
special consideration for RRSP purposes. Remember, you’ll be looking at a tax
refund almost immediately. If possible, you can turn around and put that money
back against the loan as soon as it arrives.
So borrowing for your RSP can make good
financial sense. But if you are a homeowner, the special RSP loan programs
offered by many banks may not be your best option. The cheapest money you can
get is the money under your own roof. Why? A house is considered a very
reliable security, and lenders assume little risk in lending money secured
against it.
Here’s two
possible strategies to consider:
1. Looking for funds to take advantage of
large amounts of unused contribution room?
Talk to a mortgage professional about refinancing your existing mortgage
or taking out a second mortgage to reach your retirement savings goals. Make your new mortgage money really work for
you; while you’re at it, get all your debt under one shingled roof. Roll any
high-interest credit card debt or other loans into your refinanced mortgage,
and watch your interest savings multiply!
2. Want to boost your RSP and leverage
your non-registered assets to do it? While the interest on an RSP loan is not
tax-deductible, you could discuss the following strategy with your mortgage
professional: First, sell your non-registered investments and contribute the
proceeds to your RSP. Then, arrange a mortgage to re-purchase your
non-registered investments. Because the money is being used to purchase
investments, the interest is now tax deductible.
Both strategies depend on your own
personal situation, so be sure to consult both your mortgage professional and
financial planner before proceeding. But make a point of making the call today;
the RSP contribution window is closing soon.
Nitesh Kumar is a Mortgage Consultant
with Mortgage Intelligence.