Can we still own mortgages in self directed RRSPs?

[DiscoChick]

Just wondering if in Canada individuals can still host a mortgage in a self directed RRSP? Thanks



Has any one in the group tried this? what are the advantages and disadvantages?

 

[reinvestors88]

[quote user=DiscoChick]Just wondering if in Canada individuals can still host a mortgage in a self directed RRSP? Thanks




IMO, the only way you can hold mortgages in a Self-directed RRSP is to lend it to investors as arms-length mortgage but not under your name, immediate family members or person related to you.



You can also use it by withdrawing the money, pay corresponding taxes/fees/penalties, etc., and use the money as down payment in buying either personal or investment property under your name.



Just sharing...others may have different opinions.

 

[CurtisSvidal]

As a longtime Mortgage Specialist with RBC/Royal Trust I've done quite a few SDRSP/RIF mortgages.

Currently RBC policy is that these can be done as non arms length mortgages, placed on the primary residence of the plan holder or his/her spouse. This product appeals mainly to clients who have or will have a mortgage and who want to hold guaranteed investments in their retirement plan.

The primary advantage is that the RSP/RIF can increase yield by several percentage points over other eligible investments of similar qualify. The psychological factor of paying oneself also appeals to many people. Because these are CHMC/Genworth insured they are guaranteed

To maximize the return to the RSP, plan holders generally pay a high rate...a one year open, today at 6.30%, is a common choice. However the plan holder in his/her role as a borrower must be willing to pay that instead of a "normal" rate of approx 3.25%. Being able to deduct the interest (if the mortgage funds are used to earn income) does mitigate somewhat paying the higher rate.

Disadvantages are the costs to set up/maintain...most costs are upfront, and the mortgage is a large/illiquid investment for the retirement plan.

I hope this helps.

 

[bizaro86]

[quote user=CurtisSvidal]As a longtime Mortgage Specialist with RBC/Royal Trust I've done quite a few SDRSP/RIF mortgages.

Currently RBC policy is that these can be done as non arms length mortgages, placed on the primary residence of the plan holder or his/her spouse. This product appeals mainly to clients who have or will have a mortgage and who want to hold guaranteed investments in their retirement plan.

The primary advantage is that the RSP/RIF can increase yield by several percentage points over other eligible investments of similar qualify. The psychological factor of paying oneself also appeals to many people. Because these are CHMC/Genworth insured they are guaranteed

To maximize the return to the RSP, plan holders generally pay a high rate...a one year open, today at 6.30%, is a common choice. However the plan holder in his/her role as a borrower must be willing to pay that instead of a "normal" rate of approx 3.25%. Being able to deduct the interest (if the mortgage funds are used to earn income) does mitigate somewhat paying the higher rate.

Disadvantages are the costs to set up/maintain...most costs are upfront, and the mortgage is a large/illiquid investment for the retirement plan.

I hope this helps.




Can this be done in a TFSA as well?



Regards,



Michael

 

[DiscoChick]

Primary residence only? So rental/income properties won't qualify.

 

[CurtisSvidal]

At this point no. Also the minimum RBC will do these for is $25,000 (although a $50,000 minimum makes more sense in my opinion) and very few TFSA have these kind of balances yet.

 

[CurtisSvidal]

[quote user=DiscoChick] Primary residence only? So rental/income properties won't qualify.





At this point RBC policy is that these be placed on primary residence only...proceeds of course can be used to invest.

 

[Thomas Beyer]

Arms-length mortgages are OK in an RRSP following the trustees' guidelines ( OlympiaTrust, B2B, CWT to name a few). Non arms length mortgages only insured. Due to setup and annual cost a minimum if 50,000 or better 100,000 should be the minimum.

 

[Echoo]

It depends actually. There are instances where Canadian can host a mortgage in a self directed RSSP in an individual basis. It really depends on the company and the policies.