Real Estate

Mortgage in the RRSP

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  • Nov 30th, 2021 4:12 pm
[OP]
Member
Sep 23, 2011
434 posts
596 upvotes
Vaughan

Mortgage in the RRSP

Dear bulls and bears,

While I usually know my way around finances, I have never bought real estate. We're approaching that time in our lives where we are starting to think about buying a home. One of the things I heard/read is that you can be your own lender by using the RRSP. Mighty google (which is incidentally one of the investments we hold in the RRSP) revealed the following:
- I have to set up a loan using the posted rate, not discounted.
- not every institution is offering this
- there are fees

Has anyone done or considered it? What are the pitfalls? Any advice/direction would be appreciated.
Thanks in advance!

P.S. To avoid potential confusion, I am not asking about the first time home buyers plan.
13 replies
Member
Apr 19, 2018
353 posts
107 upvotes
Scarborough
Saniokca wrote: Dear bulls and bears,

While I usually know my way around finances, I have never bought real estate. We're approaching that time in our lives where we are starting to think about buying a home. One of the things I heard/read is that you can be your own lender by using the RRSP. Mighty google (which is incidentally one of the investments we hold in the RRSP) revealed the following:
- I have to set up a loan using the posted rate, not discounted.
- not every institution is offering this
- there are fees

Has anyone done or considered it? What are the pitfalls? Any advice/direction would be appreciated.
Thanks in advance!

P.S. To avoid potential confusion, I am not asking about the first time home buyers plan.
Iheard about this when working for a big 5. Its a great strategy but hard to find someone at the bank that understands it.
Don't worry be happy - Bob
Deal Addict
Mar 3, 2018
3020 posts
3386 upvotes
GTA
With mortgage rates so low does it make sense to lose a historical 8% return when your RRSP could be invested in equities instead. This was popular years ago when interest rates were over 5%.
[OP]
Member
Sep 23, 2011
434 posts
596 upvotes
Vaughan
DaveTheDude wrote: With mortgage rates so low does it make sense to lose a historical 8% return when your RRSP could be invested in equities instead. This was popular years ago when interest rates were over 5%.
We have a runaway RRSP which returned 22.5%/yr for the past 8 years... At this rate (even if we get 5% on average going forward for the next 30 years) the taxes will be quite high when we start withdrawing. My preliminary thinking was that this would become the fixed income in our portfolio and we'll invest more aggressively in TFSAs and the other RRSP/LIRAs.
Deal Addict
Mar 3, 2018
3020 posts
3386 upvotes
GTA
Saniokca wrote: We have a runaway RRSP which returned 22.5%/yr for the past 8 years... At this rate (even if we get 5% on average going forward for the next 30 years) the taxes will be quite high when we start withdrawing. My preliminary thinking was that this would become the fixed income in our portfolio and we'll invest more aggressively in TFSAs and the other RRSP/LIRAs.
Yes you could look at it as a fixed income part of a portfolio. But with variable rates available at 1.25% it would actually be losing purchasing power with 2% inflation. However I can see the benefit of knowing indirectly your mortgage is covered.

As I remember bonafide monthly payments still need to be made and the fees can be high.
Member
Jan 3, 2003
425 posts
134 upvotes
Vancouver Island
Saniokca wrote: We have a runaway RRSP which returned 22.5%/yr for the past 8 years... At this rate (even if we get 5% on average going forward for the next 30 years) the taxes will be quite high when we start withdrawing. My preliminary thinking was that this would become the fixed income in our portfolio and we'll invest more aggressively in TFSAs and the other RRSP/LIRAs.
I'm pretty sure this video has been posted here before.



The condensed version is you hold a first mortgage in your RRSP at low interest rates, and a second in your TFSA at a high interest rate. Because more of your payment goes to the TFSA you gradually transfer money from your RRSP to your TFSA without tax penalties.

YMMV, it is a sales pitch and I dopn't personally know anyone who has done it.
Member
Jan 26, 2020
220 posts
176 upvotes
Birdman wrote: I'm pretty sure this video has been posted here before.



The condensed version is you hold a first mortgage in your RRSP at low interest rates, and a second in your TFSA at a high interest rate. Because more of your payment goes to the TFSA you gradually transfer money from your RRSP to your TFSA without tax penalties.

YMMV, it is a sales pitch and I dopn't personally know anyone who has done it.

I spent months learning and contacting lenders .. it’s straight forward process

You can lend money to yourself or anyone else , (arm or non arm length)

1) move your rrsp to trust bank which oversee RRSP funds
2) pay associated fees $75 application, &80/month admin fees (or whatever is charged)
3) potential clients to follow traditional method of application
4) you charge interest , ideally max posted rates similar to banks , or 4-5% for first mortgage and 11-15% for second
5) trust bank admins the money, lend after approval , manages payments


It seems simple, but I never did it. But I am now thinking to refinance one of my rentals , put $100k on rrsp to get max tax credit and then start doing second mortgages . I might put some on TFSA
Jr. Member
Jun 8, 2009
152 posts
46 upvotes
Toronto
Here are two Canadian institutions that support the type of mortgage you are looking for.
Canadian Western Trust
Olympia Trust
Saniokca wrote: Dear bulls and bears,

While I usually know my way around finances, I have never bought real estate. We're approaching that time in our lives where we are starting to think about buying a home. One of the things I heard/read is that you can be your own lender by using the RRSP. Mighty google (which is incidentally one of the investments we hold in the RRSP) revealed the following:
- I have to set up a loan using the posted rate, not discounted.
- not every institution is offering this
- there are fees

Has anyone done or considered it? What are the pitfalls? Any advice/direction would be appreciated.
Thanks in advance!

P.S. To avoid potential confusion, I am not asking about the first time home buyers plan.
Member
Jan 3, 2003
425 posts
134 upvotes
Vancouver Island
nucats wrote: I spent months learning and contacting lenders .. it’s straight forward process

You can lend money to yourself or anyone else , (arm or non arm length)

1) move your rrsp to trust bank which oversee RRSP funds
2) pay associated fees $75 application, &80/month admin fees (or whatever is charged)
3) potential clients to follow traditional method of application
4) you charge interest , ideally max posted rates similar to banks , or 4-5% for first mortgage and 11-15% for second
5) trust bank admins the money, lend after approval , manages payments


It seems simple, but I never did it. But I am now thinking to refinance one of my rentals , put $100k on rrsp to get max tax credit and then start doing second mortgages . I might put some on TFSA
Awesome!

I may actually be in a position to do this with my renewal next year. Just need a few thousand more in the RRSP. Do you remember which of the trust banks you checked out?
Member
Jan 26, 2020
220 posts
176 upvotes
Birdman wrote: Awesome!

I may actually be in a position to do this with my renewal next year. Just need a few thousand more in the RRSP. Do you remember which of the trust banks you checked out?
Canadian Western Trust
Olympia Trust
Newbie
Mar 21, 2016
26 posts
3 upvotes
beemer2009 wrote: Here are two Canadian institutions that support the type of mortgage you are looking for.
Canadian Western Trust
Olympia Trust
Any other institutions besides these two?

I know TD recently stopped offering non-arms length mortgage in RRSP.
Newbie
Mar 21, 2016
26 posts
3 upvotes
I think OP's question is about non-arm's length mortgage (i.e. taking a mortgage loan from your RRSP for a property in your title).

Unfortunately, it seems like Olympia Trust does not accept this type. Only accepts arm's length mortgages - is someone able to confirm, please?

Olympia will not accept the following mortgage types:
o Non-arm’s length
o Collateral
o Demand
o Promissory notes
o Chattel
o Agreements for sale

Source: https://rsp.olympiatrust.com/assets/for ... mation.pdf
Sr. Member
May 31, 2017
546 posts
782 upvotes
I’d like to know if this can be combined with the Smith Manuever…so you loan yourself the money and the interest becomes tax deductible? Basically, you use this as a way to have tax deductible mortgage interest within Canada.

Also, could it be structured as a HELOC which would then allow accessing your funds for things other then the home itself and writing off the interest. I suspect the answer to having it as a HELOC would be a no…but the Smith Manuever may be possible??
Jr. Member
Aug 7, 2007
142 posts
27 upvotes
I did this in the mid 80's thru TD Bank, investments branch (now Web-Broker). It had to be done thru a self-directed RRSP (reasonable fee to set up) . The bank picked the lawyer who drew up the mortgage agreement (terms must be current market terms). The fees are pretty much the same as you would pay any institution; No different that paying the TD bank --only my RRSP got to keep the interests!!
It was really hard to find someone in the branch(es) who knew what I was asking for, so keep asking !! It was a win win for me.

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