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Can My Mortgage Pay For My Child’s Education??

January 27, 2012

If you have kids and/or nephews or nieces, this post about using mortgages for education is especially for you…

According to MoneySense magazine, experts forecast that the cost of a four-year university education in Canada, including tuition and accommodation, will run upwards of $100,000 by the time today’s toddlers graduate from high school.

How do you find $100,000 to save for a child’s post-secondary education? $100,000 seems like an insurmountable amount to save for post-secondary education, but if you start planning for post-secondary education while your kids are young, the costs of post- secondary education can still be affordable. Plus, you’ll save your loved ones from being burdened with thousands of dollars in student loan debts!

Here are some ways to start:

A Registered Education Savings Plan (RESP) is an excellent place to start.

With an RESP, you can contribute up to $50,000 per child. You don’t get a tax break for the money you put in, but the funds grow tax-free. Since withdrawals belong to the student, they’re also effectively tax-free since any tax owing is offset by the student’s education credit and personal tax credit.

There are two types of RESPs: self-directed and group plans. Group plans are pooled investments that involve regular monthly payments to a company that manages your funds and guarantees your principal. But self-directed RESPs are generally considered to be a better investment because they offer greater flexibility and lower fees. They’re available at most Canadian
financial institutions, and you can choose to invest in mutual funds, stocks, bonds or GICs.

The best thing about an RESP is that it qualifies for the Canada Education Savings Grant that gives you 20¢ for every dollar you contribute up to $2,500 a year per child. So even if your investments perform badly, you’re guaranteed a 20% return ($2,500) on your first $12,500 per year!

Your mortgage can also help fund your child’s education. You can free up money for your yearly RESP contribution by taking advantage of many mortgage lenders’ “skip a payment” feature. Or when the time comes, you can do an equity take out to cover tuition fees so you end up paying affordable mortgage rates instead of prime + 1.0% or prime + 2.5% like you might with an OSAP loan.

For more tips on how to use your mortgage strategically, feel free to give MonsterMortgage.ca a call at (416)480-0234 – if you’re currently using an RESP or you’re not entirely sure how it works, take a look at this article by Mike Holman at the money smarts blog!

Edited on February 7th, 2012 at 5:20PM – numerical error