An RRSP Mortgage? Why not pay yourself the interest instead of the bank? Under certain circumstances, this could be the right fit for you.
The mortgage you set up will fall under one of two categories, either “Personal (Non-arm’s Length)” or “Arm’s Length.”
If you need to use the money for your own use, ie a refinance or purchase, the mortgage will fit into the “Personal (Non-arm’s Length)” category.
If you want to use your RRSP funds to lend out as a 1st, 2nd, or 3rd mortgage to someone else, the mortgage will fit into the “Arm’s Length” category.
Some of the information detailed below including requirements and fees is specific to our preferred RRSP issuer, Canadian Western Trust.
Personal (Non-arm’s Length)
- You are the borrower in this category, and it is you that makes the payments back to your RRSP.
- Your self-directed plan must have a sufficient amount of available cash in the account to fund the mortgage and cover fees at the time of funding.
- Use part or all of your non-locked in RSP/RIF/TFSA to fund a first or second mortgage. One mortgage can be funded from multiple self-directed plans. Each plan will be administered separately as if the mortgages were unrelated.
- Like a regular mortgage, there must be real estate to register the mortgage against. The property you register the mortgage on must be an owner occupied principal residence or vacation home in Canada.
- You can borrow up to 90% of the value of the residence for a purchase.
- Refinances are allowed up to 80%, to a maximum of $200,000.
- The mortgage will be CMHC insured, no matter what the loan-to-value ratio, and you will have to qualify under CMHC guidelines to secure the approval.
- Appraisals must be current to within 1 year. They are only required at the initial time of set up.
- The interest rate is self-set with certain parameters. The rate you set for yourself can be within 1% over or under the Canadian Chartered banks’ posted rates. So, for example, if the current posted rate for a 5 year term is 4.50%, you can set your own rate from 3.50 to 5.50%.
- The maximum amortization is 25 years.
- The mortgage is fully open, and can be paid out at any time.
- There is a one-time set up fee of $325.00.
- Annual fees total $325.00/year for administration.
- To renew a term is $100.
- You can choose any term just like a regular institution.
- You are the lender in this category, and you can lend up to 90% of the value of a property as a first, second, or third mortgage.
- You are in the driver’s seat to determine the terms and conditions of the mortgage. It is your responsibility to ascertain the credit worthiness of the borrower, the value of the property, the borrower’s equity in the property, and all other relevant matters that impact your lending decision.
- At the anticipated funding date of the mortgage, sufficient cash is required in the account (your RRSP). The Trustee or Administrator will not liquidate an investment in the account to generate cash for you.
- The interest rate can be a minimum of 2% and a maximum of 30% with an interest term of up to 10 years.
- At the least, annual interest payments based on semi-annual, not in advance, or simple interest calculations only, will be required.
- Mortgages must be registered on Real Property (residential or commercial) located in Canada (excluding Quebec), and registered in the Land Title Office. Raw land is eligible as security, however leased land is not.
- Annuitants are required to provide a current appraisal (within one year) issued by a licensed real estate appraiser, or a property tax assessment for the current year.
- One mortgage can be funded from multiple self-directed plans. Each plan will be administered separately as if the mortgages were unrelated.
- Initial set up fee is $100.
- Annual fees are $275/year for administration.
- Renewal fee is $50 per renewal.
For more information on RRSP mortgages, click here for the Canadian Western Trust web site, or email me with any questions; firstname.lastname@example.org.