For many Canadians it is either pay the mortgage or save for retirement. Consider contributing the maximum to your RRSP and using the resulting tax refund to pay down your mortgage. If you need to borrow to contribute, use an online calculator to work out the interest savings you would realize on your mortgage, after you prepay an amount. Or, contact your lender and let them do the calculations for you. You may find that these savings, even after you deduct the cost of prepayment, make borrowing the money for an RRSP contribution worthwhile.

Did you know that you can use your RRSP funds to become your own mortgage lender? Obviously, you must have money in your RRSP in the first place. Many experts suggest about $50,000, although others say it can be cost-effective at lower amounts for some RRSP holders. You lend yourself the money for a first or second mortgage under terms that are comparable to those that you would find in the open market. You may be paying the same rate of interest but notice who gets the thousands in interest from semiannual compounding. If you lend to yourself, you must get mortgage insurance to protect the RRSP against your failure to repay the money. This may run as much as 3.75% of the amount of the mortgage. If you lend to someone else, mortgage insurance is not legally necessary although a financial institution administering your RRSP may require it. Many financial institutions and salespeople selling RRSPs are not aware of these options or do not hold mortgages in RRSPs. Trust companies are a good place to start.

If a parent or relative plans to give you a financial gift at some point, perhaps you can gently request it be put into an RRSP now where it can earn tax-deferred interest. This works well if generous relatives have said they will give you money to buy a house. The money could go into your RRSP now and when you find the right house, up to $20,000 in RRSP funds can be withdrawn to finance your purchase. In the second year, you begin repaying the borrowed RRSP funds at 1/15th per year. This forces you to save for your future while you live for today in your new home.

Check out these alternatives carefully to see whether they make sense for you. RRSP rules are complex and it is easy to overlook a detail which can prove expensive later. Start with the Canada Customs and Revenue Agency (it was Revenue Canada) at http://www.ccra-adre.gc.ca or check your phone book for the office near you. Your Realtor or other financial advisers can help you with the number crunching, too.

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