Can the mortgage request be funded by more than one RRSP account?
Yes, mortgages can be funded wholly or in part from the annuitant’s RRSP. If your RRSP is not large enough to fund the entire mortgage, the mortgage could be split between your accounts and other RRSP fund holders.
What properties qualify?
Residential (max 4 units) & Commercial Real Estate
What type of monies can be used to fund a mortgage?
Cash, of course. RRSPs, Registered Retirement Income Funds (RRIFs), Locked in Retirement Accounts (LIRAs) and most other registered plans.
Are there any CRA rules and laws?
A mortgage, or an interest therein, in respect of real property situated in Canada is a qualified investment for a trust plan. There is no requirement that the mortgage be a first mortgage, second, or third, as long as the plan holder is provided a registrable interest.
CRA rules on RRSP and other registered funds investments:
The Canadian Revenue Agency (CRA) allows a wide range of investments to be held within registered accounts.
- Mutual funds
- Bonds and Debentures
- Term deposits and Guaranteed Income Certificates (GICs)
- Equity linked notes
- Rights and warrants
- Covered calls, long calls, puts, and LEAPS
- Gold and silver certificates
- Mortgages secured by real property
1st, 2nd, or 3rd Mortgages… Which is the safest/riskiest?
A mortgage loan secured in 1st position is commonly held by banks. Because a 1st position mortgage is registered first on title it’s safer than all mortgages registered after; 2nd or 3rd. In the event of default on a 1st Mortgage, the bank will try sell the property via power of sale or foreclosure. The 2nd mortgage holder would be next in line after the sale of the property. Whatever is remaining after 1st mortgage debt is paid would go to the next mortgage holder on title. Due to the higher risk, subsequent registered mortgages after the 1st
mortgagee are at a higher rate.
What do I do in the event of a borrower default?
If the borrower is unable to make his or her monthly mortgage payments, the financial institution administering the mortgage will place the mortgage in default. It will then attempt to collect the proceeds upon a power of sale of the property. There are alternatives to overcome this. Contact us at 1-877-756-1119 for alternatives.
What is the difference between Arm’s Length vs. Non-Arm’s Length?
The term “arm’s length” refers to how close or distant the borrower/property owner and the lender are in relation to each other. The CRA allows both arm’s length and non-arm’s length mortgages as allowable investments in an RRSP. See below for differences.
Arm’s Length Mortgage (Service provided)
This is a mortgage that allows RRSP holders to fund a mortgage to a 3rd party. The 3rd party cannot be related by blood, marriage, or adoption. Funds are self-directed RRSP. There’s great flexibility with this plus mortgage insurance isn’t required! Example of 3rd party include Friends, Co-Workers, Aunts/Uncles/Cousins and of course Strangers.
Non-Arm’s Length Mortgage
This mortgagor and the annuitant are one in the same. To qualify, the mortgage must be insured, and the rate must be consistent with normal practice. The relationship is of blood relation; parents, children, siblings.
What are the benefits in investing in Mortgages?
- Mortgage interest payment is a fixed income payment.
- Investing in mortgages is often less risky than mutual funds and stocks, because you are secured by both the borrower and the property.
- Investor / Lender has full console of investment they choose to be in.
- Full negotiation of the interest rates and terms with the borrower through the mortgage broker.
- Still invest in real estate but avoid being a landlord running after tenants is a smarter investment than owning the property and everything associated with ownership.
- Earn passive income while staying tax-sheltered.
I don’t have enough to fund a mortgage by myself. What are my options?
It is common to put together a number of investors who have never met into a group to fund a mortgage. Each investor is individually registered on title for the % of the mortgage they hold. Amansad Financial also has relationships with proven MICs (Mortgage Investment Corporations).
FAQ 10. How is the income generated from a private mortgage taxed?
Answer: This depends on how the private mortgage is funded. If the mortgage is funded via RRSP, the monies are only taxed upon withdrawal at your marginal tax rate. If the mortgage is funded personally, the income is added to your existing income and it is taxed at your current marginal tax rate. If the mortgage is funded through a company, consult with your accountant to determine if it would be best to claim income as investment, other, or passive.
If you’d like to get regular updates on available mortgages in Saskatchewan, Alberta or British Columbia, Contact Amansad Financial Services c/o DLC Brokers For Life
Inc. at 1-877-756-1119