Can You Use RRSPs For A Down Payment?

Question

“I have been contemplating taking your Creative Financing Using RRSP Mortgages course… I have a quick question for you that I’m wondering if you could help me with. Is it possible to go the traditional financing route but use someone else’s RRSP money for the down-payment?

For example, buy a property for $200K:

80% mortgage from the bank = $160K
20% down-payment consisting of:
- 15% RRSP investment from 3^rd party to be on title = $30K
- 5% cash investment by me = $10K

Any advice, would be greatly appreciated.”

Greg from Ottawa, Ontario

Answer

This scenario is possible, but you’ll likely have to close with 20% cash resources first and then go back and add the 2nd mortgage shortly after closing. This is because most 1st mortgage lenders want to see you have equity in the deal.

Just be careful you don’t get a collateral mortgage from the big banks (e.g. TD, RBC, etc.), which may place a full 100% charge against the property even though they are only lending you 80% LTV.

In addition, one of the trustees I recommend in the course will not go above 90%, so you will have to use one of the remaining two.

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Aleksey says:

Thanks, knew the answer but glad to confirm it again

Johanna Armstrong says:

I was wondering about this too. If the 3rd party who puts 15% from their RRSP down and wants to be on title, would that then be a non-arms-length mortgage? For instance if I had a JV partner who wanted to use their RRSP to put in their half to get half of the equity, would that be viewed as them using their own RRSP to finance their own house? Or would they view me as an arm’s length third party using their RRSP for the mortgage?

Paul Blacquiere says:

at

Hi Johanna,

I should have clarified in the above Q&A.

If the person who is holding the RRSP mortgage has legal or beneficial title of the property (meaning they are shown as a legal owner, co-owner, or as a JV partner), then that is a non arms length mortgage and the borrower (you) would be required to qualify with mortgage insurance.

However, I should point out that all RRSP mortgages are registered as a *mortgage charge* against the title of the property, which is not the same as having legal title.

For the mortgage to be considered arms length, the RRSP mortgage holder cannot have legal title — they have to be arms length from the property and the owner of the property.

I hope this clarifies things

Paul

Alfred says:

Is there any affect on this buying process as CMHC recently changed some policy? Also since it is a new purchase and the money is used as down payment, how you can close it first with 20% and then close again for 80% from a lender? Please explain and direct if any mortgage documents on this scenario.

I wonder if this is applicable towards a buy from Builder where you put some deposits periodically and once house is ready, you go for mortgage. Please explain. Thanks.

Alfred says:

at

Actually after thoroughly thinking on this, I understand what Paul actually meant. It is actually a buy with 20% down and traditional mortgage. Once this is closed, only then 15% taken as 2nd mortgage. But this requires to have people (friends/relatives etc) to borrow 15% from in the first place.

For 2nd mortgage in above method, I wonder if non arm length RRSP mortgage can be used as well. Is there any wait time for doing so? Also how CMHC insures this? 15% amount? Also my question for buying from Builder still applicable here. Please clarify. Thanks in advance.

- Paul Blacquiere says:
  
  at
  
  Hi Alfred,
  
  You are correct — in the above scenario, you have to close on the property first with cash resources (e.g. 20% down). After closing, you can then go back and add a 2nd mortgage to extract the 15%. This can be done with any property — private sale or from a builder.
  
  Non arms length mortgages (e.g. from yourself or family members) can be used to directly finance property, but you don’t need a 2-step process. However, you have to pay the mortgage insurance premiums to CMHC (based on property type, purchase or refinance, etc.), and qualify at the bank and with CMHC. CMHC mortgage insurance is based on the total loan amount and insures only the mortgage, not the down payment.
  
  Hope this helps
  Paul