Using RRSP Mortgages To Invest – Part 2

In Part 1 of this article, I discussed how you can borrow other people’s RRSP money in the form of a mortgage, as well as some of the advantages of doing so.  In this part, I’ll discuss some of the requirements of RRSP Mortgage lending, and how to use them in your investing.

There are two types of mortgages that can be held within retirement accounts such as RRSPs and RRIFs:

  • Arms length
  • Non-arms length

The term arms length is used by CRA and refers to how closely or distant the borrower / property owner and the lender are in relation to each other.

For example, for a borrower, the following people are considered:

  • Non-arms length – brother, sister, parents, spouse (either common law or by marriage), your own children (including adopted)
  • Arms length – friends, strangers, uncles, aunts, cousins

This means that for a mortgage to be classified by CRA as arms length, an individual could borrow mortgage funds from the RRSPs of their friends, strangers, uncles, aunts, and cousins, but not a brother, sister, parent, spouse or child.

For a detailed description of CRA’s (www.cra-arc.gc.ca) definition of arms length, please refer to Income Tax Folio # S1-F5-C1 at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f5/s1-f5-c1-eng.html.

All investments within retirement accounts, including arms-length mortgages, must be managed by financial institutions.  For RRSP Mortgages, the financial institution acts as a trustee for the account holder and manages the mortgage on the private lenders behalf.

For example:

  • Jane has a self-directed RRSP account with TD Waterhouse
  • Joe wants to borrow her RRSP money in the form of a mortgage
  • Jane’s financial institution acts as her trustee for the transaction

Private RRSP Mortgage lenders are an excellent way to finance a property with little to no hassle, and with terms and conditions favourable to the borrower.  Anyone who doesn’t want to deal with banks should consider using them to finance property.

The following list is a brief overview of some ways RRSP Mortgages can be used to finance property:

  • Buying property – reduce or eliminate the need for bank financing, as a substitute for a down payment, mortgage insurance, or a joint venture partner
  • Refinancing – pay for renovations, buy more property, buy out any partners
  • Selling property – make your property easy for people to buy with no qualifying mortgages

As with any mortgage financing, great care must be taken to ensure the investor can afford to make the payments, as well as repay the original amount borrowed at the end of the term.

In addition, investors should also know:

  • exactly how mortgages work
  • how to structure RRSP Mortgages to their advantage
  • what to do when the mortgage term has ended, and
  • exactly how to fill out the trustee paperwork

If you’re interested in learning more about RRSP Mortgages, check out my home study course with step-by-step detailed instructions on how to do all of the above and more.

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 <<

Follow Me

Paul Blacquiere

Founder and Editor at Spirepoint Wealth
Paul is an entrepreneur, investor, speaker, educator and publisher. He is founder and editor at Spirepoint Wealth, a financial education company dedicated to helping people improve their finances, create more cash flow and build long-term wealth.
Follow Me
  • Hi Paul,

    Quick question.

    If I set up my investment business as a corporation, and the business buys a property in it’s name, and if the business needed extra funds, could I borrow from my RRSPs (set-up as a second mortgage)?

    Thanks,

    Jimmy Kelland

    • Paul Blacquiere says:

      Thanks for your question Jimmy.

      Unfortunately, one of the definitions of non-arms-length I forgot to mention is a controlling interest in a closely held corporation. So because you own the corporation and you also own the RRSP, you would not be able to use an ‘arms length’ mortgage.

      If you were partners with a few other people who together owned the controlling interest, and those people were considered arms length to you, then you should be able to loan your personal RRSP to the corporation. But since you don’t have a controlling interest, remember that you alone don’t make the decision.

      Does that make sense? If not, let me know…

      • Riz says:

        I am looking to setup a corporation (with friends) to buy some property.

        Say there are 8 friends and all own 12.5% of the ABC corporation. Can they all pool in their RRSP into 1 property that ABC Corporation purchases with Arms Length Mortgage?

        Will TD act as a trustee for such a mortgage?

        • Paul Blacquiere says:

          Hi Riz,

          If you are all arms length from each other, technically that may be allowed, as long as no party owns a controlling interest. However, CRA can also look at the ‘intent’ behind a transaction (along with other factors) and may disallow it based on those grounds. I recommend calling CRA for clarification on this particular scenario.

          As for TD Waterhouse, they no longer administer arms length mortgages. You would have to use a different trustee.

          Paul

          • Jason says:

            Hi Paul, I see this here now, ignore my previous email, any recommendations on another administrator?

            Sincerely,

            Jason

          • Paul Blacquiere says:

            There are 3 more trustees that I compare and contrast in detail in my RRSP course. One of them is Olympia Trust, 2 more are outlined in the course, and I’ve also found 2 more that I have yet to review.

            However, I can’t recommend one over another because it depends on what you want — not all trustees have the same terms, conditions, restrictions, and fees.

            If you’re interested in a detailed explanation of how to use RRSP mortgages, along with a detailed comparison chart of trustees, you can read more about my course below.

            Click Here for more details on the RRSP course

            Also, if you’re on my email list, you’ll be notified of any special promotions I may be having.

            Paul

  • David Lepage says:

    Hi Paul,

    You are refering to :

    If you’re interested in learning more about RRSP Mortgages, check out my home study course with step-by-step detailed instructions on how to do all of the above and more.

    Do you have the link of your home study course for this topic?

    Thanks

    David

    • Paul Blacquiere says:

      Hi David,

      I guess the link above (at the end of the article) was big, bold, but not very clear as to what it was for 🙂 I’ll edit it so it’s a little more obvious, but in the mean time, you can click the following link:

      Click Here for more details on the RRSP course

      Paul

  • Mark says:

    Is there an annual maximum dollar amount that can be lent out through ones RRSP to mortgages through a self directed (trustee) mortgage?
    I was told in passing that only $65,000 can qualify…

    • Paul Blacquiere says:

      Hi Mark,

      There is no CRA-imposed limit to the dollar amount that can be lent out through someone’s RRSP. Some trustees may impose different limitations, but you’d have to ask them for details. For example, TD Waterhouse doesn’t allow an interest rate of greater than 30% per year (although it can accrue and be paid out at the end of the term).

      Hope this clarifies things

      Paul

  • Chris says:

    TD Waterhouse is no longer in the business of holding people’s SDRSP Arm’s Length mortgages. Which other financial institute is best in your opinion to move the mortgages to? B2B Trust?

    • Paul Blacquiere says:

      Hi Chris,

      You’re correct – TD Waterhouse is out of the game as of April this year (with a few temporary exceptions).

      B2B Trust is another option for a trustee, and I recommend 2 more to my students. However, there is no ‘best’ one… Each has it’s own pros and cons, so the one to use really depends on your goals for the property and the financing you want.

      I review each trustee in detail in my RRSP course using a comparison chart that helps you choose exactly which one is best for your situation. You can check out my course at the link below:

      Click Here for more details on the RRSP course

      Paul

  • Anand says:

    Hi Paul,
    Is a family trust considered “Arms length” (since the trustees include non-family members?). Could an RRSP owner lend RRSP money to a family trust that could then lend or invest money in a corporation held by the RRSP owner?
    Thx

    • Paul Blacquiere says:

      Hi Anand,

      It’s highly unlikely CRA would view your trust scenario being ‘arms length’, even if the trust included non-family members… unless perhaps the majority were non-family. This is a complex situation and I recommend you contact CRA directly to confirm.

      As for the 2nd part of your question, if the property is paid off and an RRSP mortgage loan is added, the borrower would receive a cheque. As with any mortgage proceeds, the borrower can do anything they want with them — spend them, loan them, etc. If the RRSP mortgage is being used to acquiere and finance the property, then there is no cheque received — the proceeds go to pay off the seller.

      I hope this helps

      Paul

      • Anand says:

        Thanks Paul.

        Maybe one more question….?
        Could me or my hold-co borrow a friends RRSP as a term loan (interest only, say for 5-10 years)? If so, could the proceeds of such a loan then be used as down-payment on an investment property to be acquired by the hold-co??

        Thanls

        • Paul Blacquiere says:

          Hi Anand,

          Your holding company could borrow your friend’s RRSPs as a mortgage secured against a property the company either already owns, or will own by the closing of the mortgage.

          It cannot be used to simply borrow the money from an RRSP — there must be a mortgage in place for the trustee to release the funds.

          In addition, the terms must match standard commercial practice, so you would need to look at market interest rates for 5 and 10 year mortgage terms.

          Another way I’ve seen that companies borrow other people’s RRSPs (without having a mortgage in place) is by issuing bonds for their company (bonds can be held in an RRSP). The money can then be used for any purpose, such as growing the business, or buying more property.

          However, I have never done this and you’ll likely need a lawyer to draft the bond issuing legal agreements, look into securities regulations regarding what you can and can’t do, etc.

          Hope this helps

          Paul

          • Anand says:

            Thanks. I really appreciate your input.
            If I issue a bond, will let you know how it goes.

  • Arvind says:

    Hi Paul,

    Can you clarify a bit please?

    In part 2 of the article you mention the following:
    “There are two types of mortgages that can be held within retirement accounts such as RRSPs and RRIFs:
    •Arms length
    •Non-arms length”

    But later you stated that in order to be acceptable for the CRA it must be “Non-arms length”. I’m confussed. Can the person with the RRSP be in a “Arms length” relationship with the property owner or not?
    Thank you

    • Paul Blacquiere says:

      Hi Arvind,

      Both types of mortgages (arms length and non-arms length) are allowed by CRA. However, there are specific rules for what is classified as an ‘arms length’ mortgage.

      If the property owner is a friend or stranger, they are arms length. If they are a sibling or parent, they are non-arms length, and the RRSP mortgage requirements imposed by the trustee are much more strict (e.g. mortgage insurance is required)

      I recommend referring to the CRA interpretation bulletin above if you want more detail on arms length vs. non arms length.

      Paul

  • Jay says:

    ok assume that the interest on non-arms length mortgage is deductable as an investment expense.

    1. The interest is deductable.
    2. The SDRSP setup cost’s and maitenance fee’s are not.

    Would the CMHC fee’s be deductable as a borrowing cost ?
    Would the annual trustee fee be deductable ?

    • Paul Blacquiere says:

      Hi Jay,

      These are questions for an accountant. I know. for example, there are some costs that must be deducted over a period of time (e.g. certain financing costs), but an accountant would be the best person to answer.

      Paul

  • Mark says:

    How about this scenario:

    I am married to my wife who has a blood sister married to her husband. Can I lend my RRSPs to my wife’s sister’s husband or would he be considered ‘non-arms length’?

    Thanks and excellent article BTW!

    • Paul Blacquiere says:

      Hi Mark,

      Glad you enjoyed it. I recommend you read section 6 titled “Marriage” in CRA’s IT-419R2. Sounds like you might be considered non arms length.

      For complex situations like this, I recommend you contact CRA directly to ask whether your particular situation is arms length or not.

      Paul

  • Michelle says:

    Hi! Great article!

    I have a question… My father in law wants to give us his RRSP to use towards buying our first home. He lives outside of Canada and just maxes his contribution each year but will never use it here in Canada. Is this possible? Would we have to borrow the funds from him??

    How would we go about doing this?

    Thanks in advance,

    Michelle

    • Paul Blacquiere says:

      Hi Michelle,

      Glad you enjoyed the article. If you read the section called “Marriage” in CRA IT-419R2 (link in the article above), you’ll see that you are considered “connected by marriage” (however, I always recommend people call CRA to confirm).

      This means your father-in-law cannot lend you his RRSP funds in the form of an arms length mortgage. He could, however, do it in using a non arms length mortgage, but you would have to pay mortgage insurance fees and you would have to qualify as you would for a normal mortgage and meet CMHC guidelines.

      Hope this helps

      Paul

  • patrick says:

    if in example i want to purchase a house worth 200 000 and do a self directed rrsp mortgage
    part one of question is :

    i have enough in my rrsp to cover 100 % can i do that ?
    if that is the case and i can self finance 100% , would i still need a cash deposit ?

    • Paul Blacquiere says:

      Hi Patrick,

      The type of RRSP Mortgage I’m talking about in this article is called an ‘arms length mortgage’, which means it’s with someone who is not directly related to you (see the CRA bulletin for details). So with an arms length mortgage, you could not do what you want to do.

      If you want to borrow your own RRSPs, you have to use a non arms length mortgage, which requires qualifying and mortgage insurance. Unfortunately, mortgage insurers likely won’t allow you to finance up to 100%, so you would need a down payment.

      Hope this clarifies things

      Paul

  • Jason says:

    Hi Paul I have been recently looking into this options and was told by TD Canada Trust that they no longer are offering to administer this option. Have you heard or read anything about this? I can’t find anything on the internet.

    Thanks in advance.

    Jason

    • Paul Blacquiere says:

      Hi Jason,

      That is true… they only administer non arms length mortgages now. You’ll have to use another trustee instead.

      Paul

  • bob says:

    Hi Paul,
    I am thinking about an rrsp mtg on a property i wish to buy for myself. i would have a down pmt of 150k and finance the rest on the rrsp. any problems setting up one of these things for a second (lake) home?

    • Paul Blacquiere says:

      Hi Bob,

      If you’re using someone else’s RRSPs, it’s an arms length mortgage and there’s no problem.

      If you’re using your own RRSPs, it’s a non arms length mortgage and you have to qualify for CMHC or GE mortgage insurance. They might have restrictions on where properties are located, and a country lake home may not be allowed.

      Also, for non arms length, since you have to qualify just like a regular mortgage, the down payment may or may not be enough, depending on the purchase price. CMHC and GE both have limited on the loan amounts.

      Hope this helps

      Paul

  • jim says:

    Good day.
    my wife and I are interested in purchasing some land, then putting a house on it.
    I would like to use my RRSP’s to pay for it. but I keep running into road blocks when I try and talk to people about it.
    my question is can I use my RRSP’s to buy investment property, or should I be looking at an arm length or non arms-length investment.

    • Paul Blacquiere says:

      Hi Jim,

      You can’t use your RRSPs to directly buy land (without de-registering the funds), but you could setup a non arms length mortgage against your personal residence (assuming you have enough equity for the new RRSP mortgage). Then with those proceeds, you could buy the land and any interest you pay to your RRSP would be tax deductible.

      However, to do this, you need to qualify for CMHC mortgage insurance with a lender. While this is not the focus of my course, I recently added an interview to my Creative Financing Using RRSP Mortgages course explaining how to use your own RRSPs to invest in property.

      Another option for you is to withdraw the RRSP funds, but unfortunately you’ll pay tax on it.

      Lastly, if you do not currently own a principle residence, you and your wife may be eligible for the Home Buyer’s Plan, where you can withdraw the RRSP funds tax-free to use to purchase property. However, the funds must be paid back eventually.

      I hope this helps

      Paul

  • Richard says:

    Hi Paul,

    Is possible to use my wife’s and my RRSP to lend the money to the company (incorporated – both my wife and I are the directors) to purchase investment properties ? and does this count as arms length ?

    Thank you

    • Paul Blacquiere says:

      Hi Richard,

      The only way this would work is if you did not own a controlling interest in your corporation. That means you have other shareholders. The fact that you are both directors may influence things as well.

      This is not a simple scenario… I suggest you Google CRA’s arms length definition, read through all that legalese, and then call CRA for a definitive answer.

      I hope this helps

      Paul

  • Elena says:

    Hi, are there any Canadian lenders who offers non-arms-lenth RRSP mortgage to purchase an investment property? I called several banks, they only offer arms-lenth mortgages. Please help.

    • Paul Blacquiere says:

      Hi Elena,

      A non arms length mortgage is held on a property you or your close family owns. You would have to have a property with sufficient equity and qualify for the mortgage with CMHC insurance. You could then take those funds and buy an investment property. TD Waterhouse still offers these types of mortgages.

      An arms length mortgage is held on a property you or your close family does not own – e.g. a stranger, a friend, etc. The rules are very flexible, including very low interest only payments, and up to 100% financing. I compare 3 different trustees in my RRSP course, so you can select the right one.

      I hope this helps.

      Paul

  • Kim says:

    Hi Paul,
    I am 39 yrs old and currently having to decide what to do with my pension money (LAPP Alberta) as I no longer work for a company I was with for 19yrs. I understand that I have the option to move it into a LIRA or RIF. I would like to explore if using the money for a down payment for a house for my family (myself, husband, and daughter) is possible. If so, then how much of it to use. Do you know if this is possible and if so, then how to go about it.
    I am leery of investors as I recently lost RRSP money in a MIC scam.

    Kind Regards,
    Kim

    • Paul Blacquiere says:

      Hi Kim,

      I’m not familiar with an Alberta LAPP. If the pension funds are held inside an RRSP (or you have separate RRSP funds), you can use those are part of the Home Buyer’s Plan to purchase your first home. You can read more about it here:

      http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/

      If the funds are in a separate type of pension account, you will probably not be able to use the Home Buyers Plan. If the funds are not locked, you might be able to withdraw them and use those funds to purchase a home.

      Before you do anything, I suggest you contact a financial planner in your area to help you decide the best approach to take.

      I recommend a fee-for-service financial planner vs. a free one, because the free ones get paid for recommend investments (like mutual funds). You may have to pay a few hundred dollars for the advice and corresponding financial plan you will receive, but it will be unbiased advice and well worth it.

      I hope this helps

      Paul

  • Sylvia says:

    Hi! RRSP Mortgages are a totally new concept to me and I’d like to explore. What if I want to help my son and his wife purchase an investment property in the $250,000 price range with a down payment of 25%. We have about $375,000 in RRSPs. What’s our best option?

    Thanks!

    • Paul Blacquiere says:

      Hi Sylvia,

      Your son and his wife would be considered non arms length, so you’d need to setup a non arms length mortgage if you wanted to directly finance the investment property.

      However, there are many restrictions and you need to qualify at a bank for a mortgage with CMHC or GE insurance. That means your maximum loan amount could not be 100%, which means you still need to come up with other money (likely 20-25%)

      Alternatively, the mortgage could be secured against your own home (if you have enough equity). You can then use the funds to help purchase the investment property. Since the down payment money is coming from a secured source (a mortgage), most lenders won’t care if you use that money for the down payment.

      However, if you give them the money and you are not an ‘investor partner’ on the property with them, you cannot deduct the mortgage interest you are paying into your RRSP. If you are an investor partner, then you can.

      I hope this helps

      Paul

      • Sylvia says:

        Thanks for your response. How can we use our RRSP as a source for the 25% down payment for our son’s investment property? So for a $250,000 property, we want to access $62,500 from our RRSP. Can this be done?

        • Paul Blacquiere says:

          As I mentioned, you can setup a non arms length mortgage against another property (such as your personal residence). You need enough equity to meet CMHC or GE’s non arms length mortgage guidelines, and you have to qualify just like a regular mortgage. You can then use the proceeds as the down payment for an investment property for yourself or your son.

  • jennifer says:

    I would like to know about selling a property that has an rrsp mortgage and your comments that the buyer does not need to qualify to buy??? Or that the buyer takes over the payment of the RRSP? Could you explain further, thanks
    Jennifer

    • Paul Blacquiere says:

      Hi Jennifer,

      If you are the one selling a property and you’ve financed the property with an RRSP mortgage from a 3rd party, you can set things up so the buyer doesn’t need to quality for the RRSP mortgage. The financing is already in place, and the new buyer would simply take over the mortgage instead of going to the bank for new financing.

      I hope this clarifies things

      Paul

  • Louise Harrison says:

    Hello,

    We have a property worth 350,000 with a line of credit for 182,500 sitting as a first mortgage, ( currently the debt is down to less than 10,000). My husband has a self directed RRSP worth 34,000 (We have other SD RRSP’s where we have invested in arms length mortgages).

    Is there any benefit in him using this RRSP to put a second mortgage on our property – we would use the 34,000 for renovations and/or investing elsewhere or are we just robbing Peter to pay Paul ?? What if any are the tax benefits for my husband as the sole income provider ?

    I look forward to hearing whether this is a viable option or whether I am making the situation too complicated for little return.

    Regards

    • Paul Blacquiere says:

      Hi Louise,

      He would have to use a non arms length mortgage, and in your situation, I wouldn’t recommend it. Your mortgage amount would be small, and there are setup costs + CMHC fees that wouldn’t make it worthwhile.

      Paul

  • Sean says:

    Good day! Great article.

    Two questions that I’d love clarity on – 1) does a LIRA qualify if it is moved to self-directed and 2) can I lend myself the money (arms length) from the LIRA in order to fund a portion of the purchase (down payment on 2nd property).

    Why a 2nd home in this equation? My home is for sale, and not sold, but need to relocate inter-provincially, so rather than rent, if we can purchase in the destination and use the LIRA to fund the down payment, will be beneficial

    • Paul Blacquiere says:

      Thanks Sean. To answer your questions…

      #1 – yes, LIRAs in general can be used and made self-directed, but for your situation, it depends on the LIRA account itself. Check with your LIRA administer to see what options are available.

      #2 – no, you cannot length yourself money from the LIRA and have it be arms length. Arms length means you are not related by blood, adoption or marriage. In your situation, it would be non arms length, which means you have to qualify at a bank, have mortgage insurance (e.g. with CMHC), and there are setup fees as well.

      Hope this helps

      Paul

  • Stephanie says:

    Hi Paul,

    My husband has approximately $180,000 in an RSP (Fortress Financial) and we are exploring the possibility of a non arms length mortgage against my second income property. This property already has a traditional mortgage of $175,000 but is appraised at $255,000. My mother and I hold title on this property. (purchased prior to my marriage).

    I have a 25 year federal pension (still employed) which I don’t have access to.

    I imagine is we were going to use his RSP and have it secured by my property we would need to add him to the title? Would the legal fees and insurance fees be worth our while?

    I echo Sean’s comment….. Great article and comments.

    Thanks for your help.

    Stephanie

    • Paul Blacquiere says:

      Hi Stephanie,

      All RRSP mortgages are registered as a charge against the property title. This is not the same as adding his name to the legal title of the property.

      If you want to do that, I recommend you consult an accountant to determine if there are any tax ramifications to doing so.

      Re: the fees, only you can decide if they would be worthwhile for a non arms length RRSP mortgage. Keep in mind there are CMHC fees, legal fees, plus trustee fees. Also note that there is a maximum loan amount CMHC will insure, so the end result mortgage will be less than the $80k equity you have.

      I hope this helps

      Paul

  • David Delice says:

    Very insightful! Thanks for the info.

  • Shelly Ruben says:

    I am interested in buying a second property for investment purposes (it will have a rental income) with my husband. We have about $120,000 in RRSPs (together). Can we use a non-arms length mortgage to borrow the down-payment and then go to a financial institution for the rest of the financing?

    • Paul Blacquiere says:

      Hi Shelly,

      You will need to setup a non arms length mortgage against your home, and pay the mortgage insurance premiums. There are also requirements to meet and you must qualify for the mortgage.

      With those proceeds, you can then buy a second investment property with traditional financing. You would then qualify for traditional financing on the investment property. The non arms length mortgage loan proceeds should be accepted as down payment if your particular lender accepts secured funds (there are workarounds if they do not).

      There’s more to it, so if you’d like to discuss, feel free to contact me to setup a consultation. I can make sure I understand your situation exactly, explain the concept in more detail and connect you with the right people to get things done.

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

      Thanks,
      Paul

  • Bob says:

    What are the responsibilities of the trustee in managing an ALSDRSP from a LIRA account that was transferred from the Ontario Teachers Pension Fund. Does the trustee have the responsibility of insuring the LTV and its interest rate are within RCA guidelines ? If so what are the guidelines for a commercial property in Ontario. Thank you

    • Paul Blacquiere says:

      Hi Bob,

      Sorry for the delay, your comment was lost in my ‘comment spam’ folder.

      As with any financial institution holding locked in plans, the trustee must make sure they follow any federal or provincial rules. The trustees also have their own rules regarding interest rates and LTV. I cover those in detail in my RRSP training program. You can find out more information here:

      https://www.spirepoint.com/products-services/investor-training/creative-financing-using-rrsp-mortgages/

      Paul

      • Bob says:

        Thank you Paul,
        As a mortgagor of an ALSDRSP where funds from a RRP were invested by an institutional trustee where its agent was authorized to manage the fund. The agent did not follow the trustee’s plan and permitted a waiver for a completed borrowers pre-authorized debit form. The beneficiary/applicant collected a due mortgage payment on behalf of his trust and used them for his personal use. The agent refused a discharge because of a default clause on the deed. It took seven weeks for the agent and trustee to figure out a way to get round having having to deal with embezzled funds satisfy the trust and lift the defalt. As this mortgage was on a newly renovated commercial premises the mortgagor had no option but to accept a very unfavorable discharge settlement to save its business. Who is liable and what should the mortgagor do ? .

        • Paul Blacquiere says:

          Sorry Bob, I’ve never heard of a situation like this. I recommend you call a good lawyer.

  • Jason says:

    Hi Paul, I am having huge issues moving an old arms length plan from TD to someone else. The holder of the plan is a friend who lives in BC and I’m being told by Ontario credit unions that they can’t administer a plan from another province. In addition national banks like B2B have tightened their rules so much that now we don’t qualify for a mortgage we set up 8 years ago…any suggestions?

    • Paul Blacquiere says:

      Hi Jason,

      I’m not sure which trustees you’re approaching, but there shouldn’t be an issue unless there is something wrong with the loan-to-value of the property, payment structure, etc. You should be able to transfer an arms length mortgage as long as it meets the criteria of the trustee.

      I explain all the criteria of 3 different trustees in my RRSP training program, and more will likely be added in the future.

      You can learn more about it here:

      https://www.spirepoint.com/products-services/investor-training/creative-financing-using-rrsp-mortgages/

      Paul

  • Kewal says:

    Hi Paul, I am looking at possible RRSP Mortgage plus be a JV. My friend would buy the home for $310000. I have been asked to provide $77500 as a second mortgage. The buyer would get $232500 1st mortgage from bank. Do you know if this would work as my portion is in essence the down payment?

    I would be offered equity(to be negotiated)at the 5 year mark. The owner would make an annual payment back to RRSP(also to be negotiated, possibly a % of the cash flow). Do I have to set the interest rate or can it be kept open as cash flow might fluctuate. I would appreciate your comments on this. Thanks

    • Paul Blacquiere says:

      Hi Kewal,

      What you are talking about is called a “participation mortgage” — a mortgage where you can participate in the equity growth, even though you’re a mortgage holder. It’s an advanced strategy and not commonly used. I haven’t confirmed with RRSP mortgage trustees to see if they handle these.

      However, I do know there must be at least annual interest paid, at a set rate. That rate can change at any with notice to the trustee (not all trustees offer this feature). There is also a maximum interest rate, which can’t be exceeded. So if the property increases in value dramatically, your mortgage interest rate is capped.

      I have training programs that can help you set something like this up, but it’s an advanced strategy. I don’t recommend it unless you have investing experience.

      Hope this helps

      Paul

  • Remi says:

    Hi Paul,

    This is the first time I hear about using RRSP as my own mortgage. I have no RRSP, but I have what is called RDSP (Registered Disability Savings Plan) in which Canada gives us money on top of our contributions. For example, every 1500$ that I put in it each year, gives me 3500$ from the federal governement. It’s for handicapped people only, so it’s not very popular, but it’s a tax-free account like RRSP. I imagine I could use this too to buy myself a property? I already own 2 appartement buildings (one with 4 tenants and the other with 6 tenants) and a house rented by friends (I don’t live in any of the 3 places).

    Knowing about your discovery before last year, I could have use the ‘arms-length’ scenario to allow them to buy their house, so I guess it’s too late now, right? However, we are looking at buying another property later. Can I use it this time? I think it’s wonderful what you’re doing to help out ordinary investors with today’s financial woes. Thanks for your reply and have a wonderful day!! 🙂

    Rémi 🙂

    • Paul Blacquiere says:

      Hi Rémi,

      Yes, I’ve heard of RDSPs before. I have another subscriber who was asking about using arms length mortgages inside those accounts. The problem is there is no trustee I have found yet that will administer arms length mortgages inside an RDSP account.

      If you have friends or other unrelated parties with an RRSP, LIRA, TFSA or other type of account, you could use their funds to setup an arms length mortgage when buying new property or refinancing existing property.

      If you have your own RRSP, you could setup a non arms length mortgage against one of your properties.

      But unfortunately, I haven’t found the option yet for RDSPs. I assume it’s because they are relatively new and the financial institutions tend to move slowly on these types of things.

      Hope this helps

      Paul

  • Jamie says:

    Paul:

    Are the rules the same for an arm’s length / non-arm’s length mortgage inside a TFSA?

    Thanks, Jamie

    • Paul Blacquiere says:

      Hi Jamie,

      At this time, TFSAs can only be used for arms length mortgages. I haven’t yet found a trustee that will handle them for non arms length mortgages (although there is no technical reason why not — they just haven’t offered the service).

      Paul

  • Shawn says:

    Paul,

    If you hold a LIRA and want to lend it out as a mortgage – are you able to lend it to a corporation that you hold controlling interest in?

    Thanks

    • Paul Blacquiere says:

      Hi Shawn,

      Technically, that would be considered a non arms length transaction (you hold a controlling interest in the corporation).

      Unfortunately, I have not yet found a trustee that will setup non arms length mortgages for corporations.

      Paul

  • Erik says:

    Hello Paul,

    I live in Vancouver in a home valued well in excess of $1M. I still have a good size mortgage left. I am contemplating doing a non arms-length RRSP mortgage for a portion (not all) of this amount. My understanding had been that a 0.5% CMHC insurance fee was obligatory for non arms-length mortgages. However as of this summer, the government no longer provides this insurance for homes with a value in excess of $1M. Would I be required to still get insurance given the change in the CMHC regulations for a non arms-length mortgages? Thanks for your help with this.

    Regards,
    Erik

    • Paul Blacquiere says:

      Hi Erik,

      Yes, all non arms length mortgages must be insured – it’s a requirement by CRA. You may have to look for another mortgage insurer.

      Paul

  • Kewal says:

    Hi Paul,

    My personal residence is fully paid off. Can I place a 1st mortgage on it and use the proceeds to buy an investment property. First is this legal.

    Second, can the costs to set this up and the mortgage interest be deductible from investment income. I know this is an accounting question but you may have insight.

    Thanks

    Kewal

    • Paul Blacquiere says:

      Hi Kewal,

      Yes, you can absolutely refinance your principle residence (or any property you own) and use the proceeds to buy investment property (nothing illegal about it).

      If you use the mortgage proceeds to buy any investment property, you can deduct the setup costs (must be capitalized and deducted over time) and mortgage interest (deductible in the year it was paid).

      I definitely recommend you check with your accountant for more details about your specific situation.

      Hope this helps

      Paul

  • Anne says:

    I am holding a 1st mortgage on a private home of a person not related to me. We agreed on a rate of 5% for a 5 year term. This rate is higher than the 2.5% I am getting in the bond fund in my RRSP. The property is worth $360K and the mortgage is for $324k (5% down). my question is whether it would be worthwhile to move to a self directed RRSP and pay the fees to move this mortgage from being held by me personally, to the RRSP? My question is about the insurance costs, that I would have to pay out of the interest payments. Given that this is an arms length mortgage with 5% down, what would the insurance costs be? My quick math is that this would defeat the benefits of this strategy?? Thanks for your thoughts

    • Paul Blacquiere says:

      Hi Anne,

      Since you are arms length to the other party (not related), there is no requirement for mortgage insurance.

      If your RRSP has enough money to fund the 1st mortgage, you simply need to setup a new RRSP mortgage against your borrower’s home. The interest rate could stay the same, or you could give them a small discount as an incentive to do it.

      When the transaction closes, your RRSP mortgage would pay off the existing 1st mortgage, and you would simply incur legal costs. Any payments from the borrower would go into your RRSP instead of directly to you.

      If you’d like to learn how to setup RRSP Mortgages, check out my training program “Creative Financing Using RRSP Mortgages”

      Hope this helps

      Paul

  • Annie says:

    Hi Paul; regarding the Non Arm’s length RRSP mortgage; what if my child is the sole borrower and he is also the sole beneficiary of my RRSP, by the time when i’m not here anymore; does he still need to continue paying the interest for the mortgage? What’re the tax implications he has to face during that time?

    Please advise.
    Thanks
    Annie

    • Paul Blacquiere says:

      Hi Annie,

      I’m not an accountant or estate specialist, so I’m not 100% certain for this scenario. I believe executors typically sell off any assets of the deceased, so the heirs can receive any distributions. Any investments inside the RRSP would need to be liquidated and the RRSP cashed out with taxes paid, so that would mean the Non Arms Length RRSP Mortgage would have to be paid back. Not sure if the mortgage could be held until the end of the term or not.

      In any case, I highly recommend contacting an accountant, lawyer and other professionals who specialize in estates.

      Paul


  • >