Good Idea or bad to use RRSP for paying off mortgage

[himachal]

Good or bad to use RRSP for paying off mortgage

[JD in Van]

Personally?

I think this depends hugely on your age and if your property is likely to increase in value.

If you're young (and there for have the time to replenish your RRSPs) and if you're living in an area that's likely to see an increase in property values (there for you will get a return on your investment), I can't see why you wouldn't.

But, if you expecting to have to lean on that retirement in the next 20 years then no way.

You should talk to your financial advisor about your situation and options.

[chillys-willy]

I wouldn't be taking money out of an RRSP to pay down the mortgage, especially at these low rates we are paying for lending right now. I did take money out of myDH's RRSP last year because it was a low income year for him, otherwise I would have left it in. I am putting more towards my mortgage right now than my RRSPs but that is a choice I am making. As JD said, speaking to a financial advisor would be advisable. There are alot of advisors that will meet with you initially for free to give you their ideas for your investment ootions.

[KellyC]

I almost fainted when I read your title!!! Don't do it!

The money you will be taxed is insane. You're way better off paying the interest on the mortgage. Why not try finding a broker if you are with a bank...cheaper rates. That would help you more than dipping into your RRSP's. To me that would be nuts!

[ashedfc]

If one is so desperate to sell their RRSP, just to pay mortgage, than
"Why Not Sell the House, & get rid of the mortgage"

[JD in Van]

If one is so desperate to sell their RRSP, just to pay mortgage, than
"Why Not Sell the House, & get rid of the mortgage"

Cause rent is often more expensive then the mortgage?

[chillys-willy]

Cause rent is often more expensive then the mortgage?

I agree and a mortgage is a forced savings plan. If you are in need of financial help, go see a financial advisor. They can give you all your options.

[brunt]

Cause rent is often more expensive then the mortgage?

Actually, you have to count property tax, maintenance, insurance and so on.

Right now in many areas rent is far cheaper than owning when you total up the whole cost of owning. Not to mention the big hit you take if you have to sell.

On the original question, one good reason not to take money out of your RRSP is that you will lose that contribution room forever. You are better off to forgo a future contribution instead to pay down your mortgage. That way you keep the contribution room (that money was never there in the first place), and you still get to pay down your mortgage.

Note that if you take the money from a TFSA, your contribution limit increases by the amount of your withdrawal, so you can put it back again later. This is one of the big differences between a TFSA and an RRSP.

If you have sufficient funds in your RRSP, you would be better off to give yourself a mortgage within your RRSP.

[jayne_a]

I pay $750 a month for rent right now, I moved to an aprt, after we sold our house. Like brunt said when you include everything, from property taxes to house insurance, water heat, power etc. It is far cheaper for me in this aprt right now. My insurance is less than half of what it was in the house, no $1400 taxes, no water bill, half the power, no heat. It's cheaper. (For me at least)

I wouldn't take out of the RRSP unless you need to, If the house is the problem, maybe down size for a while. But if you are truly having issues and selling the house would be at a loss (bad market i mean) then take out of the RRSP.

That's my 2 cents. Hope it helps

[kanewtz]

I agree that renting is way cheaper than owning.

However, renting to me is throwing your money away. Owning is building equity.

[himachal]

wow thanks to everyone for nice advice lot of expert in our board

[brunt]

I agree that renting is way cheaper than owning.

However, renting to me is throwing your money away. Owning is building equity.

I actually have a problem with the "renting is throwing away money" phrase.

So is paying mortgage interest. And property tax. And real estate commissions. And maintenance. And so on.

While it is true that over the long term average, if you intend to stay in a given house for a longer period of time (say 10 or more years), then you have been better off owning than renting. Particularly with our demographic profile for the last 30 or so years.

But this is not likely to be the case if you move a lot. And it is certainly not the case when real estate is overvalued by almost every conceivable measure like it is now. And it is disastrous if you are highly leveraged in a real estate contraction.

Some people may prefer to own, and that is fine. But projecting the last 30 years of real estate gains forward just doesn't wash necessarily.

I maintain that renting is by far cheaper in most cases right now.

[kanewtz]

I actually have a problem with the "renting is throwing away money" phrase.

So is paying mortgage interest. And property tax. And real estate commissions. And maintenance. And so on.

While it is true that over the long term average, if you intend to stay in a given house for a longer period of time (say 10 or more years), then you have been better off owning than renting. Particularly with our demographic profile for the last 30 or so years.

But this is not likely to be the case if you move a lot. And it is certainly not the case when real estate is overvalued by almost every conceivable measure like it is now. And it is disastrous if you are highly leveraged in a real estate contraction.

Some people may prefer to own, and that is fine. But projecting the last 30 years of real estate gains forward just doesn't wash necessarily.

I maintain that renting is by far cheaper in most cases right now.

You have a valid point, however, renting is throwing your money away. Its like leasing a car. In the end, you gain nothing and are just "renting" the space you live in.

That is how I see it anways. While, I understand not everyone can afford to own. If they could, people wouldn't rent.

I pay roughly 2500/month in mortgage, tax, utilities. I know you can get an apartment for quite cheaper than that and I looked into it.

I agree with you also that with the markets and ridiciously priced homes, that renting might be the "better" alternative. Same goes with the lifestyle of the individuals.

But, you cannot tell me for one minute that renting is not throwing your money away. I am talking literally here. Unless you rent to own, you will be gaining nothing and simply "renting" space to occupy.

[brunt]

You have a valid point, however, renting is throwing your money away. Its like leasing a car. In the end, you gain nothing and are just "renting" the space you live in.

That is how I see it anways. While, I understand not everyone can afford to own. If they could, people wouldn't rent.

I pay roughly 2500/month in mortgage, tax, utilities. I know you can get an apartment for quite cheaper than that and I looked into it.

I agree with you also that with the markets and ridiciously priced homes, that renting might be the "better" alternative. Same goes with the lifestyle of the individuals.

But, you cannot tell me for one minute that renting is not throwing your money away. I am talking literally here. Unless you rent to own, you will be gaining nothing and simply "renting" space to occupy.

And I realize that I am repeating myself here, but paying property tax, mortgage interest, home owner's insurance, real estate commission and maintenance is also throwing out money.

My rent is $1300 per month in my place that was brand new when we moved in a year and a half ago.

If I owned, the house where I currently live would cost about $350,000 - identical houses in this unit actually sold for that price (plus closing costs and GST). Interest would be in the $15,750 per year range. Property taxes would be in the $5,200 range, homeowner's insurance would be in the $1,000 range and maintenance would be in the $3,500 range. That's $2,120 per month.

And if I had to sell, there goes another $23,730 in commission including HST, and about $4,000 in lawyer fees to sell and buy. Not to mention the $3.725 land transfer taxes ($6,950 if I were in Toronto). If I only lived here, say five years, that's another $524 per month spread out over that period ($578 in Toronto).

All of this money too disappears without a thing to show for it. The extra money that you used to pay down your principle of your mortgage (not included above) is the only part that you get back in the end.

So, I am saving an extra $1,344 every single month, and I don't even have to shovel the snow, cut the grass or fix anything should it break. And if I want to move, I just give my 60 days notice and go, I don't have to list the house and have it sell goodness knows when.

I have a hard time seeing how saving $1,344 per month is throwing away money. Sure, we could dicker about some of the numbers, but it will still be far cheaper to rent in this instance.

Not meaning to give you a hard time here. I just have a problem with this particular "truism". I try to make a point to show (particularly to younger people lusting after their first house) how owning a house entails "throwing away money" too because this particular attitude toward rent is alarmingly almost universal. And it is often not even true, particularly if you don't stay in the house for a long period of time.

I can afford to buy. Indeed I reached my "able to early retire right now" milestone three years ago, although I am still working by choice. In fact, while I am currently looking at houses, that is only due to the fact that real estate has finally started to turn, and that houses are taking a much longer time to sell than they used to.

I expect to own within the year. And the cost of the house will be less than 35% of my net worth (another mistake made by too many owners is to have the value of their house be too much of their net worth). There will be no mortgage, so no interest payment (although one has to consider the opportunity cost of the money used). I know that there will be significant costs to owning - throwing away money if you will - but it is a lifestyle choice that we are making.

Sorry to the original poster for temporarily hijacking the thread. I think that we both have put our thoughts down, and I will resist going further down this tangent.

[ashedfc]

Each one has its own significance: Renting or Owning & paying a mortgage..
When the prices are very high (generational high as it is now) & likely to fall on a relative basis, its more prudent to get away from mortgage liability & rent while the housing comes to more normal/reasonable level. Every bubble pops, those who sell at the peak are the winners (not those who buy at peak).

Remember the previous Canadian housing bust, all home-owners with a mortgage were in trouble, & how lucky were renters, they got excellent chance to buy houses at throw-away price. Probably such a situation is coming in the next couple of years..

So, the point is Do you Sell your RRSP, to pay for Mortgage:
Under normal circumstance, its a No No (because then, you become house rich, & Cash poor), so How do you fund your retirement, or You think the Govt is going to take care of you (look at what's happening to US social security, to get an idea what the Govt can do)
However, there may be situations where it might be advisable (but you have to give the specific details, to get specific opinion), like
-> your income is very low & withdrawing from RRSP does not impact your tax liability, or
-> a Self-directed Mortgage; or
-> you are running in your retirement age & doing some estate planning, or
-> you are terminally ill /& Dr has given up hope, so you don't want your heir's to have mortgage liability, etc. etc..