Q – When you have your mortgage in your RRSP, why do you have to pay extra to insure it? – Stevi S.

A – There are many rules governing mortgages held in RRSPs, which is probably why few people use them. You are required to pay interest at market rates on an RRSP mortgage (no special deals), there’s usually a set-up charge, on-going annual costs are more, and non-arm’s length mortgages must be administered buy an approved lender under the National Housing Act and insured by Canada Mortgage and Housing Corporation or another private mortgage insurer. This mortgage loan insurance is intended to protect lenders against default and is normally required from people who can only afford a low down payment.

In the case of an RRSP mortgage, the plan holder is putting up the capital and paying interest to the RRSP. If the holder defaults on the payments, the RRSP loses its source of income. That’s presumably why the insurance requirement is there, but it puzzles me because, in essence, the investor is insuring himself. However, it’s the rule so we’re stuck with it. – G.P.