Under which conditions does it make sense for a Canadian investor to put their mortgage in their RRSP?

Question

Canada allows investors to use their retirement fundings (RRSPs) as part of a loan to themselves, which can fund the buying of a house. When does it make sense to take advantage of this?

Answer 1

An RRSP loan is most beneficial when the performance of your alternative investments (mutual funds?) do worse than your loan rate.

For example, suppose you have $100K in an RRSP. You withdraw $50K in a loan for your mortgage and keep the remaining $50K invested in mutual funds.

If the market (and your mutual funds) lose 10% than in 1 year, your RRSP will hold $45K of mutual funds. The $50K mortgage loan is now worth more than $50K because you've made principal and interest payments into your RRSP.

When the market is going down, a loan against your RRSP will "pay" better than investments. Essentially you are selling High and buying Low.

Unfortunately, it can be hard to predict the market well enough to time this well.

Answer 2

There's no free lunch. You may gain on the loan side by getting a lower rate or even approval when a bank may reject you. But in the RRSP you are foregoing a potentially higher return. On the other hand, it's a safe, guaranteed return. In the US, if you leave the company, the loan is due, or the funds must come out of the account, don't know if it's similar by you.