Question: As I get closer to retirement age, I have been shifting the balance of money in my RRSP from equities to more fixed income, and like so many others I would like to get a better interest rate than money market funds or GICs. I would like to learn more about holding a mortgage in my RRSP as an alternative.

While I realize there are costs associated with this type of transaction, I think I might be able to pay myself a higher rate of interest than what I can get on my other fixed income elements.

Am I restricted to holding a first mortgage on my primary residence? Or, with the recent changes to foreign content rules in an RRSP, is it possible to use the RRSP to hold a first mortgage on a vacation property in the United States? Is there a Web site for mortgages in an RRSP?

Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “In theory, this concept has a lot of appeal. In reality, it is an expensive way to pay yourself.”

Answer: In theory, this concept has a lot of appeal. In reality, it is an expensive way to pay yourself. By the time you meet all the stringent terms and conditions of such a loan, the cost to you is simply too high. You also incur the legal fees to register the mortgage on your property. Besides, not all RRSP trustees allow a mortgage to yourself. Trustees that do so levy an additional administration fee.

You will also require a self-directed RRSP account. However, remember that paying yourself the higher rate into the RRSP comes directly out of your other pocket. The question is, what's in it for you? None of my clients have an RRSP mortgage to themselves. Every time I've been asked to examine all the actual details of such a transaction, it was less expensive to pursue a standard mortgage.

If you do pursue the RRSP mortgage, hopefully the proceeds will be for investment purposes and the interest costs deductible. Typically, this would be a first mortgage on your residence located in Canada. Mortgages on foreign property are not accepted. Click here for more information.

I would ask you to focus on the bigger picture. That is to pursue a diversified investment plan, within your risk parameters. A plan that maintains an asset mix appropriate to achieve your personal retirement goals.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.