The self-directed RSP mortgage is another example of the type of creative mortgage products I offer my clients. In a nutshell, any Canadian with RSPs can become a lender by directing their funds into an approved trust account and is then able to lend said funds into mortgages. As the funds are kept inside the RSP structure throughout the lending cycle, there is never a tax event. This product is particularly effective for borrowers who have run out of traditional options as the mortgage can be registered for up to and including 100% of the property’s value.
Now as a borrower of this type of mortgage, you will need to note that we are not talking about borrowing your own RSPs but someone else’s. The government stipulates that the relationship must be arm’s length (non-blood relation). In addition, the lender is required to charge a market interest rate which generally follows one percent plus/minus of the Bank of Canada’s qualifying rate. The typical scenario where this type of mortgage becomes an excellent solution is when a borrower is in need of a debt consolidation above 90% of the value of their home. We then approach a non-blood relation with an interest in the party’s wellbeing and explain this option and the type of arrangement where the self-directed RSP mortgage can help the borrower and in fact provide them, the lending party, with a return on their RSPs. I always explain to my clients that this is never a hard sell as most Canadians have not seen a return over the last ten years in their mutual funds anyways.
This mortgage is not a long term solution however for those who are facing the choices of bankruptcy or losing their home in a bank power of sale, this can provide the time necessary to stave off financial ruin. The outcome of the self-directed RSP mortgage for the right candidate is the last effort to turn their situation around and as in all debt consolidation, receive hundreds of dollars in monthly payment relief.