Using RRSP Mortgages To Invest - Part 1
Have you ever been turned down for a mortgage? Have you ever run out of down payment funds to buy property? There is a solution... and it can be found in other people's RRSP accounts.
Almost everyone has heard of RRSPs (Registered Retirement Savings Plans) and some may have heard of RRIFs (Registered Retirement Income Funds) or LIRAs (Locked In Retirement Accounts).
These are retirement accounts offered by financial institutions and in which Canada Revenue Agency (CRA) allows deposits to be tax deductible and to compound tax free while they are in the account. Millions of Canadians have taken advantage of these accounts to save for their own retirement, and there are billions of dollars being invested in them, not to mentioned billions more in unused contributions room.
As you know, we offer our subscribers the ability to invest in RRSP mortgages on properties we own. So what exactly is an RRSP mortgage? Can't you only invest in mutual funds or stocks?
The CRA allows a wide range of investments to be held within registered retirement accounts (refer to interpretation bulletin # IT-320R3 at http://www.cra-arc.gc.ca for details. Most people are familiar with holding stocks or mutual funds within their RRSPs. Few people 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
Many of the above investments can only be held within a special type of retirement account called a ‘self-directed’ account. This allows the account holder to have much greater control over investment selection and decisions.
How does this benefit us as investors? We can borrow the money from people's retirement accounts in the form of a mortgage secured against a property we own or will own. This can be done using a mortgage broker, or we can do it ourselves if we know how.
Borrowing other people’s RRSP money is the same as dealing with a private lender and there are many benefits to borrowing from these individuals, including:
- No application forms
- No job verification
- No qualifying
- No appraisal, fire retrofit, etc.
- No down payment verification
- Down payment funds can be borrowed
- Financing available up to 100%
- Potentially lower interest rates than through a mortgage broker
- No mortgage broker fees
- Low setup fees
In Part 2 of this article, we will discuss more detail on RRSP Mortgages and how to use them in your investing.
Note: This article is a brief overview of RRSP Mortgage financing and is not intended as legal or financial advice. Please consult a qualified professional before making any investing or financial decisions.
This article is copyright © 2004-2010 Spirepoint Properties. All rights reserved.
Paul Blacquiere and Joanne Beehler are full time real estate investors and have been investing in Ottawa, Ontario, Canada since 2002. They are owners of Spirepoint Properties, a Canadian real estate investing company dedicated to making real estate investing easy.
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