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How to Turn Your RRSP into a Mortgage Investment

27 December 2013

If you’re looking to boost your investment portfolio even more but are wondering where to find the funds for it, you might not have to look any further than your own RRSP. Funds collected in your RRSP can be used to invest in the mortgages of others. This is called an “arm’s length mortgage,” as the borrower is most likely someone who’s at “arm’s length” from you, or is someone you don’t know very well. Here’s a brief summary of how it works.

First find a broker or mortgage adviser that can assist you in finding mortgages to invest in through your RRSP. Once you’ve found them, they will most likely as you to fill out an “Expression of Interest” or other type of form indicating your intent to invest in mortgages. The broker will most likely call you so that they can get a better idea of the area and type of home you’d like to invest in, and how much you’re looking to invest. The adviser needs to know exactly what you’re looking for to ensure that your money is being invested where you would like.

Once you and the adviser know each other a bit better, they’ll then send you an investment package outlining all of the options available to you, as well as an investor mortgage commitment letter. Once that letter is signed, you will then have made your commitment and the process of investing in mortgages can begin.

The next step, when using your RRSPs to invest in mortgages, is to ensure that the funds you plan on using are in a self-directed RRSP account. You must either already be registered for one of these accounts, or speak to your mortgage adviser about the best fund to use.

While you’re moving and transferring RRSPs, you also need to liquidate any existing investments so that you can fund mortgages. Do not withdraw your funds from your RRSP, as this will remove them from the umbrella of the tax shelter, and may even prevent you from investing in mortgages once those withdrawal fees are accounted for. You can still move your funds or get them into the right account without actually withdrawing them. Then those now-liquid assets must be transferred to the self-directed RRSP account.

Once these steps are accomplished the mortgage adviser will work to negotiate a mortgage with a borrower that’s preferable to you, with the emphasis being on keeping your money safe and getting you the best return. Once that is completed all you’ll typically have to do is sign the mortgage package. These documents will most likely include a Letter of Direction, an Arms Length Declaration, and an Arms Length Mortgage Agreement.

All you’ll have left to do at that point is to sit back, receive statements and information packets, and watch your money grow. Real estate is always the most secure place to put your money, and investing through your RRSP is a great way to do it!

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