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Self-Directed Mortgages

You may wish to hold a mortgage as an investment within your portfolio. With returns typically higher than GICs of a comparable term. Self-Directed Mortgages are an attractive asset, providing higher returns in exchange for the additional risk.

 

Canadian tax regulations allow self-directed Registered Retirement Savings Plans (RRSP), Registered Retirement Income Funds (RRIF), Tax-Free Savings Accounts (TFSA), Locked-In Retirement Accounts (LIRA), and Life Income Funds (LIF) to be used for a mortgage investment.

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Registered plans are not legally allowed to own a piece of real estate directly; however, they are able to lend money secured on title by a mortgage on a residential or commercial property. Certain conditions apply when investing in self-directed mortgages.

Non-Arm's Length Mortgage

What is a Non-Arm’s Length Mortgage? One of the investments which an individual is permitted by the Income Tax Act to hold in their eligible Self-Directed Plan is a mortgage against their own personal residential property. In this scenario, you are lending money to yourself as an individual, or as a co-borrower with your spouse (including common-law partner after one year), or any other relative either by blood, adoption or marriage.

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Eligible Investments

  1. New purchases only; no re-financing options

  2. Up to 90% Loan-to-Value (LTV) on properties less than $1,000,000

  3. Mortgage insurance (CMHC/Genworth) is required for all Non-Arm’s Length Mortgages held in registered plans​

  4. Owner occupied or principal vacation residence

  5. Suitable for year-round occupancy and equipped with electricity and plumbing

  6.  If property is on an island it must be accessible via year-round bridge or ferry access

  7. Property location in all provinces in Canada except Quebec

  8. No leaseholds

  9. No rental properties

  10. No construction properties

  11. Property must be in a personal name

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Mortgage Funding

  1. 1st or 2nd mortgage

  2. One mortgage can be funded using multiple plans

  3. Each plan will be administered separately as if the mortgages were unrelated

  4. Term and rate of mortgage must be within 1% of a posted current Canadian Chartered Banks’ 1 to 5 year fixed rate.

  5. Blended payments (principal and interest) are required.

Arm's Length Mortgage

What is an Arm's Length Mortgage? One of the investments which an individual is permitted by CRA to hold in their Self-Directed Plan including Locked-In Plans, is an investor mortgage called an Arm's Length Mortgage. In this scenario, you are lending money from your registered Self-Directed Account to a borrower. The mortgagee and, mortgagor are at “arm's length” as defined in the Income Tax Act, section 251/252. Not related by blood, adoption, or marriage..

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Eligible Investments

  1. New purchases and re-finances

  2. Up to 90% Loan-to-Value (LTV)

  3. Mortgage insurance is not required

  4. Mortgages are required to be on real property (residential or commercial) located in Canada (excluding Quebec) registered in Land Title Office.

  5. Rental properties.

  6. Raw land is eligible however leased land is not

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Mortgage Funding

  1. 1st, 2nd, or 3rd mortgages

  2. One mortgage can be funded using multiple plans

  3. Each plan will be administered separately as if the mortgages were unrelated

  4. The interest rate (minimum of 2% and maximum of 30%), 

  5. Maximum term 10 years),

  6. Payment details: blended (principal and interest) or interest only payments are permitted.

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Professional Advice Recommended

A mortgage investment is a commercial transaction that involves the identification, consideration and evaluation of various risks. We strongly recommend that you obtain professional advice in connection with any mortgage investment

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Learn More

Please contact us to learn more about self-directed mortgages.

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