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RRSP Mortgage Investing

RRSP Mortgage Investing

Using RRSP to Invest in Mortgages

One complaint that many people have about their Registered Retirement Savings Plan (RRSP) portfolios is the relatively low rate of return. One strategy that many are considering is using self-directed funds from RRSP to invest in mortgages. These are private loaned with Canadian real estate serving as the collateral for RRSP Mortgage Investing. (RRSP Mortgage Investing)

RRSP Mortgage Investments

If you are planning on using RRSP to Invest in Mortgages, Real estate is one of the more secure forms of investment out there. RRSP mortgage investments in mortgage funds allow you to diversify your risk so that your returns stay well above average.

RRSP Mortgage Investment Property

RRSP Mortgage Rules

How does it work?
When you have a self-directed RRSP account, the plan is the actual mortgage holder. This means that you’re not sitting there with the paper if the borrower(s) default. Instead of you funding one mortgage, you invest in a fund that funds many mortgages, spreading the risk out more evenly. Every month, your RRSP gets a fixed payment, tax-free. As long as you direct all of your payments back to your self-directed account, your whole profit remains tax-free. This means that you have a reliable source of income for reinvestment without having to remove from your savings or risk a tax liability. When you are eligible to collect RRSP funds, your tax bracket is likely to be much lower, which means that when you are taxed on your distributions, your tax bill will be much lower at that time. Only a trustee with National Housing Act approval has permission to administer a mortgage for RRSP funds.

RRSP mortgage canada

Today, Olympia Trust, Canadian Western Trust, Td Waterhouse, and B2B Trust are among the firms in Western Canada who have that authorization. Make sure that you form a relationship with the right trustee to get your account set up properly. Amansad Financial has the necessary contacts in those agencies to help the process run smoothly.

Are RRSP funds the only way I can invest in this opportunity?
The same rules work for Locked in Retirement Accounts (LIRAs), Registered Retirement Income Funds (RRIFs) and many other registered plans. Call Amansad Financial today, or email one of our staff, to get more information about your own particular situation.

What other rules apply to this sort of investment?
Any mortgage or interest related to real property in Canada qualifies as trust plan investment. It can be a first, second or third mortgage, as long as the holder of the plan receives a registrable interest.

What is the difference between Arm’s Length and Non-Arm’s Length?
These terms refer to the relationship between the borrower and the lender. An Arm’s Length mortgage permits RRSP holders to place their self-directed RRSP funds into a mortgage for a third party who is not a blood, adoptive or marital relation. This sort of mortgage does not have an insurance requirement, and the rates have significant latitude as far as flexibility. For a Non-Arm’s Length Mortgage, the borrower is, for all intents and purposes, the annuitant. For this to serve as a self-directed RRSP investment, insurance is a requirement, and the loan’s interest rate must be in line with rates available to that level of borrower on the market at the time of the loan.

What happens if the mortgage goes into default?
As with any mortgage, if the borrower loses the ability to make monthly payments on the mortgage loan, the lending institution handling the loan will put the mortgage into default. At that point, it begins the process of trying to collect its losses from a power of sale. However, that is not the only available solution. Give Amansad Financial a call to find out more information about the solutions available.

Is a first or second mortgage safer than a third mortgage?
The number in front of the mortgage refers to the priority of that loan at the point of sale, whether it is a real estate transaction or a foreclosure proceeding. A first mortgage is fulfilled first from the proceeds, making a second mortgage more risky by definition. This means that interest is higher on a second mortgage. As an investor, this means that your rate of return is higher, but you are accepting some more risk.

Overall, investing in mortgages is a fairly sound practice, with less risk than stocks or mutual funds. You also get a chance to join the real estate market without having the maintenance and management issues associated with life as a landlord. You receive a passive income stream that remains tax sheltered. If you are interested in RRSP Mortgage Investing as an investment vehicle, contact Amansad Financial today!

Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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