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What is an Arm’s Length Mortgage?

what is an arm mortgage

An “Arm’s Length Mortgage” refers to a mortgage that is held within an individual’s registered retirement investment account (RRSP).

Many of you know that you can use your RRSP money with the Home Buyer’s Plan to buy your first home. Many of you have done that already. Smart move!

What the vast majority of you (and most real estate investors) don’t know is that you can use your RRSP money (and other types of registered investment accounts) to invest in OTHER people’s real estate. And when I say “the vast majority”, I mean it! Most financial institutions can arrange Non-Arm’s Length Mortgage, where you use your own RRSP money to fund your own, or a related family member’s property. But there are only a few institutions in Canada that will allow you to fund someone else’s  real estate purchase. One of these institutions is  TD Waterhouse  Olympia Trust.

Arm’s Length Mortgages are very popular in Western Canada. With the help of these Trustees (Olympia Trust, TD Waterhouse. Canadian Western Trust, B2B Trust), I plan to further educate investors on this little known, and highly successful investment gem!

To summarize for you, there are three different ways to use RRSP money to invest in real estate:

#1 Home

Buyer’s Plan

You borrow from your own RRSP to buy your first home (withdrawals must be repaid within 15 years).

#2 Non-Arm’s Length Mortgage

You (as an investor looking to buy real estate property which is NOT your first home) borrow from your own RRSP or that of a family member. The money is borrowed in the form of a 1st mortgage only (on residential or commercial property), is fully insured by CMHC, and you must qualify as with a normal mortgage. The mortgage repayment terms are not flexible and must follow typical bank industry standards.

#3 Arm’s Length Mortgage  (this is the one this article focuses on):

In a nutshell, you loan money out to a real estate investor who agrees to pay you interest on the money, and the real estate investor will pay back the loan at an agreed upon time down the road. As security for the loan, a mortgage is registered against the property so your RRSP monies are protected.

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