The “organic mortgage paydown” strategy with case study
What We Covered
What is the Organic Mortgage Paydown Strategy?
A method for building your home down payment using whole life policy loans, while simultaneously funding an FHSA and unlocking tax advantages without tying up savings or relying on RRSPs.
Why Clients Use It?
- Avoid mortgage default insurance by funding a full down payment via policy loans
- Maximize tax refunds by contributing to the FHSA
- Use policy loans + GIAs to grow savings outside the bank
- Combine strategies with a spouse to double tax-free savings
- Maintain control and liquidity while building wealth for a future home
Clarifying the Strategy
- A larger policy premium (e.g., $22K/year) can accumulate enough cash value in 5 years to cover a $100K down payment.
- Policy loans fund FHSA contributions; tax refunds repay the policy loan.
- GIAs (Guaranteed Interest Account) can be laddered to align with your 5-year purchase timeline.
Important Practice Tips
- You must open the FHSA before the contribution room begins to accumulate.
- Direct transfers are required if moving funds from RRSP to FHSA to avoid penalties.
- Stay within annual ($8K) and lifetime ($40K) FHSA limits to avoid tax consequences.
- Make sure to document the source of your down payment if asked by mortgage brokers
- Use the spousal strategy to double the lifetime contribution room to $80K
Common Pitfalls to Avoid
- Treating RRSP withdrawals as “free money” they must be repaid
- Waiting too long to open an FHSA and losing carry-forward room
- Assuming banks won’t accept policy loans they do, if documented properly
- Not coordinating the timing between GIA maturity and the home purchase year
Additional resource
What This Case Study Video Covers
How to use a whole life insurance policy loan to fund a mortgage down payment, and ensure it’s accepted by your lender.
- How a real-life case from Nelson Nash’s family reveals the power of using a $20,000 policy loan to buy a home, successfully accepted by a mortgage broker as an asset, not a liability.
- You’ll see exactly why policy documentation matters, including sample letters from insurance companies and advisors that you can use in your mortgage process.
- Learn why it’s smart to withdraw your funds early (at least 90 days before applying) so they show up clearly in your bank account for lender approval.
- You’ll also be encouraged to open a First Home Savings Account (FHSA) now, even if you’re not contributing yet, to start building contribution room for future use.
- Most importantly, this video will help you understand why it’s essential to build your policy system in advance and how working with your advisor can set you up to fund your home purchase with confidence and control.