Q and A - Time To Lend

New mortgage regulations on qualifying rates Q & A

Is a self-directed mortgage an appropriate investment for your RSP or RIF?

An individual’s investor profile and goals will determine if a self-directed mortgage is an appropriate investment from a planning perspective. The self-directed mortgage is considered a fixed income investment. Consequently, a mortgage which generally involves a substantial sum of money could overweigh the asset allocation of the RSP or RIF in fixed income and could potentially affect your retirement goals.

Must the entire mortgage amount be provided by one plan?

No. Mortgages can be funded wholly or in part from the annuitant’s RSP or RIF. It is also possible to use a split mortgage, in which case funds are borrowed from both an RSP and a financial institution.

What factors should be considered in deciding whether to set up a mortgage within a selfdirected RSP?

Apart from the effect on asset allocation another consideration is the cost of holding a mortgage within a self-directed RSP. There are both upfront fees and ongoing fees for a mortgage held within a self-directed RSP. In general, becoming your own mortgagor is probably only worth consideration if the mortgage principal is at least in the $50,000 - $100,000 range.

My funds are in a locked-in pension fund, can I still use them to invest in mortgages?

In Ontario, locked-in pension funds held in an RRSP cannot be cashed out to buy a house, or used to hold a personal mortgage. Locked-in funds can, however, be held in self-directed RRSPs. Self-directed RRSPs offer a number of investment options not usually available under other RRSPs. Options include Canada Savings Bonds, Bonds, Mutual Funds, Treasury Bills, individual stocks - and home mortgages. And, unlike regular RRSPs, self-directed plans allow investors to take advantage of investments offered at a number of financial institutions.

As a Self-Directed Plan, Am I limited to lending only to myself?

No. Your funds can be used to facilitate mortgages for other people as well as a 1st, 2nd or 3rd mortgage. Now you become a lender.

What if the Borrower defaults on his or her payments?

If the borrower is unable to make his or her monthly mortgage payment, the financial institution will place the mortgage in default. It will then attempt to collect the proceeds upon a power of sale of the property or, if insufficient, from the mortgage insurance.