Arms length Mortgages/Private Lending

13 Replies

Hello everyone. I'm interested in lending money out using a self directed RRSP or TFSA account (I'm Canadian). They are called Arms length mortgages in Canada. I was wondering if anyone has done this before and can offer any advice on how to get started. I've read that a good way to get started is to contact some Mortgage brokers who like to partner with people using this strategy. If anyone has any experience on either end of a transaction like this i would be interested in hearing from you. Thank you. :)  

@Roman Stefaniw

When retirement accounts in the US get financing, the loans are called "non-recourse." There are several lenders here that specialize in these loans. I'm not sure if any also lend in Canada, but you might want to expand your search to include "non-recourse" just in case it leads to some more options for you.

@Roman Stefaniw

@Justin Windham mis-interpreted your question.  He thought you were looking to be a borrower with your plans investments, not be a lender with your RRSP.

I would seek out providers of self-directed RRSP plans in Canada.  I believe such plans are offered by specialty divisions of the mainstream financial services providers like CIBC & RBC.

Originally posted by @Brian Eastman :

@Roman Stefaniw

@Justin Windham mis-interpreted your question.  He thought you were looking to be a borrower with your plans investments, not be a lender with your RRSP.

I would seek out providers of self-directed RRSP plans in Canada.  I believe such plans are offered by specialty divisions of the mainstream financial services providers like CIBC & RBC.

 Oh, I sure did misinterpret the question. Thanks for setting him straight, Brian.

@Brian Eastman Yes. This is a self directed RRSP or TFSA account that allows you to lend your money out to people with the backing of their mortgage for a high interest rate. 1st, 2nd, 3rd mortgages, down payments, refinances, flipping or renovation money. The borrower gets the benefit of having access to capital fast and the lender gets the benefit of charging a higher interest rate and not having to pay taxes on the profit. All interest rates and payment plans are custom made to work for both parties therefor creating a win win scenario.

As far as partnering with the banks goes. I fairly positive that wont work, i have read that contacting mortgage brokers is the best way to go if you can find one. Which i've started to message some with out any luck so far.  

Originally posted by @Roman Stefaniw :

@Brian Eastman Yes. This is a self directed RRSP or TFSA account that allows you to lend your money out to people with the backing of their mortgage for a high interest rate. 1st, 2nd, 3rd mortgages, down payments, refinances, flipping or renovation money. The borrower gets the benefit of having access to capital fast and the lender gets the benefit of charging a higher interest rate and not having to pay taxes on the profit. All interest rates and payment plans are custom made to work for both parties therefor creating a win win scenario.

As far as partnering with the banks goes. I fairly positive that wont work, i have read that contacting mortgage brokers is the best way to go if you can find one. Which i've started to message some with out any luck so far.  

If I'm not mistaken, you'll need to setup your RRSP with Trust holding company such as Olympia Trust or Canadian Western Trust, etc.  You'll also want a lawyer to draft up the docs for you and register your mortgage on title of the property being lent on along with the promissory note.  

If you're not having any luck with mortgage brokers (I'd search out the ones who specialize in investments), then go to your local REI meeting. If you announce to people there that you are a private lender, you'll have a lineup around the room to talk to you.

@Roman Stefaniw

@Chad U. recommending Olympia Trust and the like is what I thought I was referring - which is self-directed plan itself.  I'd done some reading in the past and thought a few of the main Canadian banks had such specialty trust divisions that could help you with plan setup.

As for finding investments, networking with other investors, real estate agents, etc. is the way to go.

Originally posted by @Brian Eastman :

@Roman Stefaniw

@Chad Urbshott recommending Olympia Trust and the like is what I thought I was referring - which is self-directed plan itself.  I'd done some reading in the past and thought a few of the main Canadian banks had such specialty trust divisions that could help you with plan setup.

As for finding investments, networking with other investors, real estate agents, etc. is the way to go.

Brian, from what I've heard is that CAN banks  make it extremely difficult to setup.  Reason being is that it allows you to invest in other products other than they offer, so that's why they don't promote these .  They can only collect the admin fee which is roughly $150/yr.  

It's been a few years since I last updated the list of providers (there are older threads on this topic here on BP), but at last blush there were five trust companies offering the ability to write and service mortgages from registered accounts:

  • B2B Bank
  • Canada Western Trust
  • Olympia Trust
  • Eastern Trust
  • Community Trust Company

Of these, Canada Western and Olympia has the best offerings at the time.  B2B Bank had just introduced liquidity requirements which seemed to indicate they really did not want to be providing that service.

TD was the last of the Big Five to offer the ability to write and hold arm's length mortgages.  They withdrew this service in 2012.

Originally posted by @Roman Stefaniw :

@Roy N. Hey fantastic info. I find it odd that this isn't a more standardized practice. It's your money after all.. Do you know if there is a service, monthly or annual fee for opening one of these accounts? 

Roman:

There are originating and service fees associated with writing mortgages from your registered account.  However, in private financing it is customary for the borrower to foot those costs.

You can find each institution's registered account and arm's-length mortgage guidelines, and fees on their respective websites.