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AN INTRODUCTION TO RRSP MORTGAGES!


questions you might will have...

Not happy with your Registered Retirement Savings Plan (RRSP) investment returns?
Are you considering using your self-directed RRSP portfolio to invest in private mortgages backed by Canadian real estate?
With a self-directed account, the RRSP plan becomes the mortgage holder. Each monthly payment is a fixed income payment that goes directly back to your RRSP account tax-free. The plant holder not only sheltered income from the tax man by investing into RRSP, but also shelters the entire profit as long as all payments are directed back to the self-directed plan. This creates a regular source of funds for you to re-invest, without taking your savings out and or paying tax. Time when plan holder collect RRSP, most likely will be in a lower tax category, resulting paying income tax at a much lower level. A trustee approved under the National Housing Act must administer an RRSP mortgage, like Olympia Trust, TD Waterhouse, Canadian Western Trust, B2B Trust just to mention a few. Most important to pick the one you are able to reach, providing service to your satisfaction.

Can the request funded by more than one RRSP account?
Yes, mortgages can be funded wholly or in part from the annuitant’s RRSP. Thus, if your RRSP is not large enough to fund the entire mortgage, the mortgage could be split between your accounts and or other RRSP funds holders.

Only Residential properties qualify?
No, you can lend on single-family homes, multi-family properties and commercial real estate.

Besides cash , what other funds can be used to fund mortgages?
The same principles apply to: Registered Retirement Income Funds (RRIFs) and Locked in Retirement Accounts (LIRAs) and most other registered Plans. Please contact Zoltan M. Padar MortgagePRO president for more information about your situation.

Are there any CRA rules and lawys?
A mortgage, or an interest therein, in respect of real property situated in Canada is a qualified investment for a plan trust. There is no requirement that the mortgage be a first mortgage. It can be second or third mortgage as long as the plan holder is provided by a register able 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. Most people are familiar with holding stocks or mutual funds, but few realize that investments may also include:
-Bonds and Debentures
-Term deposits and Guaranteed Income Certificates (GICs)
-Equity linked notes
-Rights and warrants
-Covered calls, long calls and puts, and LEAPS
-Gold and silver certificates
-And mortgages secured by real property

Arms Lenght vs. Non-Arms Lenght, what are they?
The term arm’s length is used by CRA to refer to how closely or distant the borrower/property owner and the lender are in relation to each other. The CRA regulations permit both arm’s length and non-arm’s length mortgages as qualified investments in an RRSP, however the rules differ between the two.
-Arm’s Length Mortgage:
A mortgage that allows RRSP annuitants to use the money from their self-directed RRSP to fund a mortgage to a third party not related to them by blood, marriage or adoption. There is no requirement to have this mortgage insured, and the terms and rates have greater flexibility. Example: Friends, Strangers, Uncles, Cousins
-Non-Arm’s Length Mortgage:
A mortgage where the mortgagor (i.e. the borrower who is mortgaging his or her property) is, in fact, the annuitant. In order for a non-arm’s length mortgage to qualify as a valid investment within the self directed RRSP, the mortgage must be insured, and the interest rate and terms must reflect normal, commercial practice. Example: siblings, parents, children

What are the consequences if Borrower defaults?
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 though other avenues available, MortgagePRO will provide detailed information of all available remedies to investors.

First Mortgage or Second mortgage investments are safer?
A mortgage is a loan secured by a property, where the loan is registered on the title of the property. A first mortgage is the standard mortgage you received from the bank when you buy your home. If you default on your mortgage payments, the bank will try to collect the debt via power-of-sale or foreclosure. A second mortgage is a mortgage in second position, meaning that the mortgagee is next in line on the property after the bank or private individual in our out of RRSP (the first mortgage holder) in case of default. The mortgage is secured by registering it on the title, thus the owner cannot sell the property without paying back the mortgage. A second mortgage is more risky than a first mortgage; therefore the interest payments are usually higher than a first mortgage.
For example : A property costs $300,000. Available financing is a mortgage loan covering 80% of value (LTV) or $240,000. The required cash down payment is $60,000. A second mortgage is available from a private individual for an additional $30,000 of value a 90% (LTV), reducing the down payment to $30,000. As long as the cash flow from the property can support the second mortgage payments, this is smart real estate mortgage investing.

Why should I invest in mortgages?
-From a financial planning perspective, mortgage interest payment is a fixed income payment.
-Investing in mortgages is often less risky than mutual funds and stocks, because you are secure in both the borrower and the property.
-The lender has control over choosing the property and the borrower to invest in.
-The lender has the freedom to negotiate the interest rates and terms with the borrower through the mortgage broker.
-An opportunity to invest in real estate without becoming the landlord and running after tenants is a way smarter investment than to own the property and all associated with ownership.
-Earn passive income while staying tax-sheltered.

What are the advantages investing my RRSP into mortgages v. cash?
You can absolutely use cash to invest in mortgages, or you could learn how to invest in real estate yourself, or if you prefer a hands-off approach, invest via a mortgage brokerage like MortgagePRO Ltd.

What if we do not have enough money to fund entire mortgage?
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. MortgagePRO will only act as a Brokerage, will not manage investor funds or act as investors agent.
How do I find mortgage opportunities to fund in?

Contact MortgagePRO Ltd. We are promoting our services to borrowers, mortgage brokers as Private Lenders and Brokers to have individual investors interested to lend into mortgages in or out of their RRSP account.

redefine your retirement
Where and how to start:
Contact MortgagePRO president Zoltan M. Padar for a personal interview to get a clear picture of the investment opportunity and to make a solid educated decision of if these type of investments are for you. Ones you get registered, you will receive investment opportunities time to time.
-Go to a Canadian Trust company and open a self-administered RRSP account, or transfer funds from other account of yours. MortgagePRO will provide you a list of Trust Companies.
-Transfer your RRSP, RRIF, LIRA or other eligible registered funds to your new self-administered account.
-Receive mortgage investment opportunities from MortgagePRO, study package supplied, do your due diligence on the borrower and the property.
-Determine the type of mortgage (is it a first or second mortgage?) and negotiate the terms, conditions and interest rate in co-operation with the broker.
-When you made a decision to fund, all documents will be sent to the conveyencing lawyer to complete and sign the mortgage commitment. The lawyer will also register the mortgage and your interest on title. You will be asked also to fill out and sign a Mortgage Package for your RRSP Plan holder. Conveyencing solicitor will request funds on your behalf from your plan and will disburse same. set up an automatic payment system with the borrower or collect postdated cheques and watch the monthly profit make it to you RRSP account tax free or deposit your profit once a month into you bank account. A truly ARM-CHAIR investment Opportunity.