Can I Invest In RRSP Mortgages Using My Own RRSPs, RRIFs, LIRAs, RESPs, or TFSAs?

Question

I’m of the understanding, you and a like-minded friend could fund each others’ property investments using RRSP money – but can i use RRSP money to fund ‘my own’ property?  It seems odd that the ‘rules’ are created to make it easy to use someone else’s RRSPs – except my own. Any reason for this that you know of as i’m only curious is all.

Sorry, i’m just learning, but please don’t think you’re efforts in explanations fall on deaf ears. I have two cash-flowing properties of my own but have been stopped ‘DEAD IN MY TRACKS’. It appears i haven’t mastered the art of OPM, and the people i do speak to are ‘fearful’ of investing (as they’ve been burnt) and i’m not quite established. Even when i bring a deal that makes sense, and the numbers reflect as such i find people are ‘fearful’ to invest with me. So, my basis for asking these questions is because it looks like i’ll have to do more of my own deals, with my own money, at this point. If it’s easier for me to take out my RRSPs from the bank, pay the taxes, and use the remainder for a down payment would this be better?

With the way the US economy is going i’m sure there will be some problems that will have ripple effects into the Canadian economy. I figure the sooner i can put my RRSP money to use before it deflates in value, the better off i’ll be.

All your thoughts and efforts in explanation are greatly appreciated. I’m sure you’re a person with not alot of time for these questions but i do appreciate it.

Stan

 

 

Answer

Yes, you can use your own RRSP funds. However, the rules are very strict and there’s basically no big advantage over going to the bank. You have to qualify just like a regular mortgage, and you need CMHC insurance.  With other people’s RRSPs, they are very very flexible and no qualification is needed.


Your Own RRSPs

The reason the rules are more strict for borrowing your own RRSP money as a mortgage is because there’s a higher risk of default.  Consider the following situation…


You borrow your own RRSP funds secured as a second mortgage against your principle residence.

Mortgage amount – $50,000
Lender
– Your RRSP lends the $50,000
Borrower
– You borrow the $50,000, with your house as security
House
– now has a 2nd mortgage on it

When the transaction closes with the lawyer, you (as the borrower) receive a cheque for $50,000 (minus closing costs) and your house now has a 2nd mortgage on it.  You (as the lender) now have a mortgage appear on your RRSP statement from TD Waterhouse.


Let’s say you make payments on the mortgage for a while, but then decide to stop.  Your logic – since I’m the lender, I don’t mind if I skips a few payments to myself or I don’t pay myself back at all.  Seems reasonable, right?

The problem is that you’ve effectively withdrawn $50,000 of your RRSP funds tax-free (remember, when done correctly, there are no taxes owed when creating an RRSP mortgage).  If you decide to never pay yourself back, you can basically avoid paying taxes on that $50,000 advance.

Do you think CRA would be happy with this scenario?  Of course not.  That’s why the rules are so strict for these types of mortgages — you must qualify for the mortgage, have mortgage insurance, make regular payments, etc.


Other People’s RRSPs

When borrowing other people’s RRSP money, the chance of default (non payment) is much lower.  Do you think a lender would sit around and let you get away with borrowing $50,000 without making payments or ever paying back the loan at all?  Definitely not.  They would exercise their right to take your property or sell it – remember, they have a mortgage against it.

If you’re interested in finding out more about how to invest using other people’s RRSPs, you’ll find everything you need to know in my course…

Creative Financing Using
RRSP Mortgages

Discover how to use other people’s
RRSPs, RRIFs, LIRAs, RESPs and TFSAs
to finance real estate.

>> CLICK HERE to learn more <<


Finding Investors

If you’re having trouble finding people to invest with you, my experience shows it’s most likely something to do with what you’re doing or saying, especially if the investment is a good one.  Just reading your words in your question, I can tell that you aren’t quite confident in your abilities and if you aren’t confident in you, do you think investors will be?

I recommend listening carefully to any objections that potential investors have with you, and notice how you respond to them.  Do you have a good answer?  Do you pause and stumble with your words?  You need to practice this over and over again until you can address any concern that someone might have.

And finally, I recommend focusing only on people who are truly interested in investing.  You should be qualifying THEM, not the other way around.  If someone has been burned and is afraid of investing, chances are you won’t be the one to change their mind.  Start looking elsewhere for someone who is excited about investing and then qualify them to see if they are a fit.


Cashing in your RRSPs

Lastly, before withdrawing your RRSP funds to invest, you should do a full analysis and decide if it’s the best thing to do.  Also consider that you could team up with a couple of other investors and invest in each other’s RRSPs.  That way you can keep the full value of your RRSP and still have it invested (although not in your own property).


I hope this helps

Paul Blacquiere

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Paul Blacquiere

Paul is an entrepreneur, investor, speaker, and educator.
He's experienced in multi-family properties, renovation, flips,
joint ventures, and is Canada's top RRSP mortgage expert.
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Latest posts by Paul Blacquiere (see all)

  • Edna says:

    Hi Paul,

    Very good article. So are you saying it is allowed for me to borrow my friend’s RRSP for my mortgage and they borrow my RRSP for their mortgage for investment property?

    • Paul Blacquiere says:

      Technically, yes… as long as they aren’t directly related to you by blood, adoption, or marriage (check out my other RRSP articles on this site for the link to CRA for exact details — can’t remember it offhand).

      Some investors I know have recommended instead of doing a 2-way swap (we swap RRSPs with each other), you should do it 3-ways instead (A borrows from B, B borrows from C and C borrows from A) to minimize any problems with CRA. However, I haven’t heard of anyone having problems with a 2-way…

    • Monte says:

      I would be careful of the 2-way swap as I’ve heard of CRA audits becoming more frequent with the higher number of RRSP mortgages taking place these days. And if you are audited and it is found to be a “non-arms length” transaction, your RRSP amount becomes fully taxable just like it was withdrawn.

      • Dave Peniuk says:

        I agree with Monte – do NOT do a 2-way swap. It specifically states in the rules that it has to be non-arm’s length and doing a 2-way swap clearly violates that rule. Further, you don’t just get taxed on the rrsp funds (as if they were withdrawn), there are penalties on top of that too. It’s NOT worth it.

        There are billions of RRSP dollars out there looking for a good home with a reputable investor (borrower) in a non-arm’s length RRSP mortgage. You just have to work on finding and educating those RRSP holders on the merits of loaning RRSP funds securely backed by a REAL asset.

        Great article Paul – thanks for sharing.

        • Paul Blacquiere says:

          Thanks Dave.

          For those who are interested, here is a direct link to the reference on CRA’s site regarding mortgages as qualified investments:

          http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.html#P171_25854

          Also, here is the section on their site that talks about what is arm’s length and what is not, and specifically as it relates to ‘unrelated’ people..

          http://www.cra-arc.gc.ca/E/pub/tp/it419r2/it419r2-e.html#P131_24151

          In my opinion, as with anything related to law, nothing seems to be 100% clear (if it were, ‘case law’ wouldn’t exist where there are ‘interpretations’ of what the law means). In the above CRA document, there doesn’t seem to be a black-and-white answer — one of the things it says is that as long as you don’t have a ‘common mind’ behind the transaction, it can be okay, but even that is vague. They often reference tax court and list criteria which the courts use to make a decision, which means the taxpayer and CRA disagreed and they went to court to settle it.

          Another problem is that all the stories I hear from investors about avoiding 2-way swaps are just that… stories. So I’ve never seen a concrete case of CRA disallowing such a swap and effectively de-registering both parties’ plans or charging penalties. That doesn’t mean it doesn’t exist however, so if someone can provide me a link to a tax court case, that would be helpful for future reference.

          The reason, in my mind, that people want to swap RRSP mortgages with someone they know is that they’re afraid to approach a stranger (who doesn’t need their RRSP in return). The funny thing is… that fear could ultimately get you into trouble with CRA, something which most people are even more fearful of.

          In any case, it seems like it’s one of those ‘grey areas’ and as such, unless you’re willing to stand up to CRA if you’re challenged about it, I recommend that you stay away from doing it. As Dave says, there are billions in RRSP funds out there for you to use, and as investors, you can offer good returns secured by real assets (unlike the stock market).

  • Diego says:

    hi, i would like to know if anyone has any information related to RDSP(registered disability savings plan) similar to RRSP’s, can RDSP be used to buy real estate?as for using other people’s RRSP to invest, are there such groups or associations who’s members are willing to invest using their RRSP and if so, do you know of any in quebec? i am hearing that there are soe real-estate associations that have such groups but i don’t know of any…

    • Paul Blacquiere says:

      That’s a very good question! And one I don’t have an answer for. I recommend calling CRA directly to see if it’s technically possible, and then your next step is finding a trustee that will manage it. I use TD Waterhouse and I haven’t heard of them doing mortgages in RDSPs.

      Unfortunately, I haven’t heard of any official associations or groups that invest in each other’s RRSPs…

  • Lan Ops says:

    Can you send me a list of references of people who have taken your course?

    • Paul Blacquiere says:

      Hi Lan,

      I have testimonials and success stories for my full training programs at the top of this page. A few months ago, I also received this unsolicited testimonial specifically for my RRSP course, which I will be adding to the website shortly.

      ———————————————-
      “Added 900 dollars a month cashflow and saved 45,000 in CMHC fees”

      Hi Paul,

      I only recently received your RRSP course and I am awestruck. Absolutely necessary if you are serious about real estate investing.
      Already I am taking the info from your course and using it on an in-progress deal to add 900 dollars a month cashflow and save 45,000 in CMHC fees.
      I will be encouraging every investor I meet to buy this course. Thank you again!

      Malcolm Setter
      Calgary, Alberta
      ———————————————-

      Hope this helps

      Paul

  • Tony says:

    Hello,

    Is there a trust company/bank that allow you do to RESP mortgages? The only company I see in the web is Olympia Trust. But this company is not listed in the CDIC.

    Thanks

    Anthony

    • Paul Blacquiere says:

      Hi Anthony,

      Olympia is the only one I know of.

      Regarding CDIC, it doesn’t really matter if you plan to hold arms length RRSP mortgages with Olympia, as they are simply the trustee administering the mortgage (being held by 2 other parties) and they would not guarantee the investment anyways. If you had savings deposited with them, that would be a different story…

      • Tony says:

        Hi Paul,

        Can you please clarify what you mean by “held by 2 other parties”?

        Also, just very curious why only Olympia is allowed to do it. I’ve been told that the reason why other bank/trust company not supporting it because some of the fund is subsidized by Canada/gov’t. Is this something we have to be careful of?

        Anyone from Olympia can comment? Or who are using the trust company?

        Regards,

        • Paul Blacquiere says:

          I mean the trustee is administering a mortgage for a lender (the person with the RRSP, RRIF, RESP, etc.) and the borrower. I cover this in great detail in my course listed above, and I’ll be soon including updates for new trustees.

          I don’t know the reasons why Olympia is the only one to administer them, but it’s most likely a business decision by the other companies not to offer that service. They are all financial institutions and should have no problems offering them if they chose to.

          Hope this helps

  • abes tam says:

    I do not have any savings, but I have 12000 RRSP and I want to use it as a down payment to an investment condo:

    1) How can I tell the bank, I need this money for buying a condo

    2) Of course, 12000 is not enough to buy a condo. I am going to find another mortgage lender
    ; in other words, I will borrow more money to pay a 50,000 down payment.

    3) I am not too sure, is it a good move or not? Please advise.

    Thank you.

    • Paul Blacquiere says:

      Hi Abes,

      This is a tough scenario as you do not have alot of RRSP money, you don’t have any savings for a downpayment, and you haven’t mentioned if you have a principle residence with equity.

      It basically sounds like you are trying to buy an investment property with almost nothing down.

      I recommend you take the time to save more money, build up a strong credit profile, and talk to a mortgage broker. You can contact my recommended Investors Mortgage Broker at the link below if you don’t have one.

      https://www.spirepoint.com/products-services/investor-services/mortgage-financing/

      If you don’t own a home, I recommend you use your existing RRSP funds to help provide the down payment to buy your principle residence using the Home Buyer’s Plan. It’s a government program designed to help people get into their first home.

      I hope this helps

      Paul

  • Kim Taylor says:

    Can l use other people’s RRSP monies to purchase U.S.A. real estate?

    • Paul Blacquiere says:

      Hi Kim,

      What a coincidence that you and another person asked the same question within 30 minutes of each other 🙂

      My reply to Archie above should answer your question. If not, just let me know and I will clarify.

      Thanks,
      Paul

  • Archie Robertson says:

    Can I borrow RSP funds arm’s length to buy USA property?

    • Paul Blacquiere says:

      Hi Archie,

      Unfortunately, not directly… that means an arms length mortgage must be registered against Canadian real estate listed in the land titles or land registry system.

      However, if you already have Canadian property with some equity in it, you can find an arms length lender to give you a mortgage against that property. Those mortgage proceeds can then be invested in any investment, such as US real estate. And of course the interest on that would be tax deductible because it’s for investment purposes (always check with your accountant to make sure)

      I hope this clarifies things

      Paul

  • Debrah Boucher says:

    Hi Paul;

    Rene and I have 2 separate RRSPs and unfortunately yes we do have a mortgage on our house. Is there a way we could use our RRSPs to pay off the mortgage and not have to pay CRA the taxes. If there is a way we could save the taxes that would be amazing.

    Waiting to hear back

    Debrah Boucher

    • Paul Blacquiere says:

      Hi Debrah,

      I’m not sure what you’re trying to do is possible with an RRSP mortgage.

      If your house was paid off, you could get a non arms length mortgage from TD or one of many other trustees. Your house would then have a new mortgage on it (you loaning yourself the money from your RRSP – note: this requires CMHC insurance and qualifying criteria, just like any other 1st mortgage).

      You would have the RRSP funds to then invest in anything you want (making the interest you’re paying yourself tax deductible – disclaimer: talk to your accountant first), and you would also make payments to your RRSP for the new mortgage.

      However, that wouldn’t accomplish your goal — giving you a paid-off house using your RRSPs.

      The only thing I can think of is to de-register your RRSPs, pay the tax, and then pay off your mortgage (disclaimer — talk to your accountant first!). But obviously this isn’t what you had in mind.

      Sorry I couldn’t be of more help.

      Paul

  • CherylPere says:

    My husband and I are both working and making good money but our 100,000 in RRSPs is doing nothing. We’d like to withdraw them and invest them in real estate (rental properties), which we believe will give us a much better return on our investment over time than our RRSPs ever could. Are there any legal alternatives to just taking out the money and taking a huge hit in taxes?

    • Paul Blacquiere says:

      Hi Cheryl,

      Yes, you can invest your RRSP funds in an arms length mortgage. ‘Arms length’ means it’s a property owned by someone who is not directly related to you. And the best part is your RRSP mortgage is secured by real property (unlike the stock market which is not secured at all).

      I’ll send you a separate email with more details.

      Paul

  • Suzanne Hiron says:

    My daughter just got turned down from CMHC on a mortgage for a home, after separating from her spouse. Can I use my RRSPs to fund the 20% down required by the financial institution to get her the mortgage, while having a 20% share of the property ?

    Would the self-directed RRSP second mortgage on this property be considered an invested RRSP and not money removed from the fund for the purchase of a property?

    Suzanne

    • Paul Blacquiere says:

      Hi Suzanne,

      If you have equity in your own home, you could setup a non arms length mortgage with your own RRSPs, effectively borrowing from yourself. You would then have to make payments to your RRSPs, just as though it were a regular mortgage.

      When your daughter goes to purchase her home, you *should* be able to use the RRSP mortgage funds you extracted from your home as a down payment. This is because the funds are secured, but you should check with the lender.

      As for the 20% ownership share, that’s a different issue. You would need a joint venture contract of some kind that states you own 20% of the property.

      I’m about to start a training course on how to use non arms length mortgages. If you’re interested, send me a message with your phone # on the contact page and I will send you more details.

      https://www.spirepoint.com/contact/

      Paul

  • John Wade says:

    I am considering use of a $225K RRSP to purchase an investment condo. This would fund 80-90% with balance coming in cash. I would hope to use it for vacation/personal but to offset this with some short-term rentals. My logic would be that effectively someone else is paying back the RRSP loan with interest while the condo appreciates in value. To me this seems to be an advantage over a bank mortgage as I set the interest and amortization/term (within reason)
    Problem is that the Trustee I am considering has a “no rentals” rule for Non-Arms Length mortgages. I am not clear on the reason for this and can’t seem to get a real answer from anyone. Does government not want me to take the write-off’s associated with an investment property? Not clear why that would be, but if that’s the case I suppose I could not take write-offs. This would all be apparent during income tax reporting.

    • Paul Blacquiere says:

      Hi John,

      An alternative would be to setup the non arms length mortgage against your personal home (assuming you have enough equity), and then use the loan proceeds to invest in the condo. That would bypass the issue altogether.

      Hope this helps

      Paul

  • Dennis says:

    Hello Paul,

    Quick question as I am considering purchasing your course after viewing the webinar last night. Upon purchase of this course, could I actually start a viable business with the info provided in the course, if you need more info please e mail me privately. Thanks Paul

    Regards
    Dennis

    • Paul Blacquiere says:

      Hi Dennis,

      Yes, the course provides all the training you need to understand and use RRSP mortgages (both arms length and non arms length).

      However, you would need to be licensed as a mortgage broker in your province to represent lenders and borrowers. The RRSP course does not provide training on how to become a mortgage agent or broker. You can search Google and easily find that info for your province.

      Paul

  • dennis says:

    Paul, another question (thanks for the answer to my previous question). Can I use arms length rrsps for something other than real esate, ie lending on a business venture, or borrowing as start up funds, anything that isn’t realestate. Thanks again Paul.
    Regards
    Dennis

    • Paul Blacquiere says:

      Yes, loan proceeds can be used for any purpose such as starting a business, investing in other property, investing in stocks, etc. If the business or investment has the potential of earning income, the interest you pay should be tax deductible as well (talk to an accountant for your particular situation)

      Hope this helps

      Paul

  • Stefan Bouchard says:

    Good morning,

    My name is Stefan and I’m trying to figure out on how to buy my father’s rental apt building. I have rrsp and wonder if I can use them as a down payment and if so do I get a penalty or I have to pay tax on the amount. Also wonder up to how mutch I can take from my rrsp and also if can put back the money borrowed from my rrsp in a later date.

    Thanks
    Stefan

    • Paul Blacquiere says:

      Hi Stefan,

      You can setup a non arms length mortgage against your personal home to extract the equity, and then use those loan proceeds as the down payment against your father’s rental property (many lenders are ok with secured funds like this as a down payment). You then need to qualify for new financing on the rental property, or transfer his existing mortgage to you.

      I’ll be explaining non arms length mortgages in detail in my new live RRSP mortgage training program. If you want to join the online class, click the link below to order and when I see you order go through, I will add you to the training classes.

      Click Here to join the class

  • Anthony Baker says:

    Hi Paul,

    I was wondering what the repayment options would be on an Non-Arms length RRSP Mortgage. Can it be interest only? Or do we have to include principal as well as interest?

    Basically I am in a fairly High Tax bracket. I currently own 9 units and it cash flows pretty good. I would like to take all the profit from that property and stick it back into RRSPs to defer the taxes. One of the benefits from a rental p.o.v is mortgage pay down. However this shows up as income and since I am in a higher tax bracket that is a significant amount that I will need to pay taxes on. I do not have access to this mortgage pay down portion to stick into RRSPs since it goes back to a bank lender as principal payment. If an RRSP mortgage could be interest only then the entire amount of profit including regular cashflow and what would go into mortgage pay down could be put into the RRSP and it would allow the RRSP to build faster along with the benefit of tax deferal.

    As such If I were to do a non-arms length RRSP mortgage can I pay interest only on that mortgage?

    Regards
    Anthony

    • Paul Blacquiere says:

      Hi Anthony,

      No, it can’t be interest only payments. The non arms length mortgage must have standard principal and interest payments, and must follow normal market rates and terms.

      One thing you might consider is claiming CCA on your properties to offset the income. However, CCA must be reclaimed in the future if you sell the property at a profit. I highly recommend contacting an accountant to help with your tax planning.

      Hope this helps

      Paul Blacquiere

  • Percy says:

    Hi Paul

    I own a triplex in Montreal, I hold a mortgage with a financial institution, and I would like to invest in a new property and flipped it back into the market after some upgrades, I do have a large RRSP portafolio, what would be the max amount that I can take out ?
    After selling this property can I deposit the original amount back into the RRSP account ?

    • Paul Blacquiere says:

      Hi Percy,

      I don’t recommend ‘taking out’ money from your RRSPs, as you would pay taxes on it. You could use a non arms length mortgage against your own property to extract the RRSPs tax free, invest the proceeds in a new deal, and when you’re done flipping, you could pay back your RRSP or keep the proceeds out to re-invest in the next one.

      If you’d like to learn more about non arms length mortgages, I have a course that is not yet released that covers this in detail. Send me a message on my contact page, and I will send you some details.

      Paul

  • Tracey says:

    Hi Paul
    I have an RRSP valued at c$700k in the process of being transferred from the UK. Any withdrawal I understand would be subject to 55% UK tax on the fund value. So obviously not going to touch it any time soon – 5 UK tax years need to pass.
    I have no property – following emigrating.
    I want to buy Canadian property but still early days for qualifying hence want to put more down.
    I have $25,000 to put down.
    Can I assign my RRSP and technically borrow say $50,000 against it for what could be say 2 years?
    I know a Private Lender friend who would do this but his Lawyer said it would be very complex if not impossible.
    Thank you!
    Tracey

    • Paul Blacquiere says:

      Hi Tracey,

      You mention the UK imposes a 5 year withdrawal restriction on your newly transferred RRSP account. I’m not certain about transfer scenarios like this, but I recommend you also find out if they impose any restrictions on investments in inside the account. In other words, is your newly transferred account eligible for the full range of RRSP investments (including mortgages).

      If so, there are options for you to fund your down payment and more (since you have such a large balance).

      If you’d like to know more details, you can contact me for consulting and I’ll explain what you need to do.

      Click Here for consulting

      Paul

  • Paul Taylor says:

    I have a lira and I am not 55 yet, will I be able to use my lira to offer arms length mortgages

    • Paul Blacquiere says:

      Yes, you can still use your LIRA to invest in mortgages, even though you’re not 55.

      Paul

  • Don Bio says:

    Paul

    Can I use my RRIF to secure a Business Letter of Credit? My financial institution calls performance bonds “Letters of Credit”.

    Don

    • Paul Blacquiere says:

      Hi Don,

      Sorry, I don’t know the answer to that. I recommend you talk to your bank about it.

      Paul

      • Chirag Parikh says:

        Paul,

        Do you know how to start a company (trustee) where we can hold and administer other’s RRSP Backed mortgage investment?

        Thanks,

        • Paul Blacquiere says:

          Hi Chirag,

          Sorry, I can’t help you with that. As far as I know, trustees have to be financial institutions, which carry a lot of legal requirements, restrictions, etc.

          Paul


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