Arm’s Length Mortgages — a strategy for sophisticated investors who want a better return on their RRSPs

  • Are you unhappy with your current RRSP return?
  • What if I told you, you could be your own banker—would you be interested?
  • Would you like to learn more about getting the returns on your investments that YOU want?

If you’ve answered “YES!” to any one of those questions, you might want to take a few minutes and read the rest of this article.

But, if like most people I know, you’ve answered “YES!” to ALL 3 of those questions, then you will definitely want to take the necessary time and read the rest of this article very attentively! You owe it to yourself… and to your loved ones.

“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 currently only two 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 TD Waterhouse  Olympia Trust experts, 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):
You invest your RRSP money into someone else’s real estate. It can be in the form of a 1st, 2nd or 3rd mortgage; on residential, commercial, industrial properties, vacant land or recreational property. The big difference between this method and #2 is that the “someone” can NOT be related to you—as defined by section 251 of the Income Tax Act. In short, that means your spouse, family, or in-laws.

In a nutshell, you loan money out to a real estate investor (like me) 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.

An Arm’s Length Mortgage is the MOST flexible way to use RRSP money. It is a sophisticated investor strategy that I plan on using for years to come for expanding my real estate portfolio and that of my investors.


An Arm’s Length Mortgage provides many excellent benefits for the person interested in turning their RRSP money into one or more mortgages, such as:

  • Offers a Consistent, Predictable Return on Investment
    Regardless of the fluctuations in the market and the status of the world economy, you know your investment will earn you X% of interest over Y number of months or years.
  • Simplified Retirement Planning
    You know precisely HOW MUCH money will be added to your RRSP account (unlike floating interest rates or dividends or sales from stocks) and WHEN money will be added to your RRSP account.
  • High Return
    You typically get a much higher return on investment than you currently receive with other investment vehicles.
  • Pre-Defined Investment Terms
    You know precisely when your investment money is no longer being used for a mortgage and is returned to your account.
  • You Have Full Control
    You, the Investor, have full control over which mortgage you want to invest in (unlike mutual funds).
  • Secured by Real Estate
    Your investment is secured by REAL estate… unlike money invested paper assets like (Mutual Funds, GICs, Stocks, etc).
  • No Time Required
    After spending a bit of time to set up the process, you won’t need to spend time on this since the trustee, lawyer and borrower do ALL the work.
  • No Special Expertise Required
    No expertise required on your part (the borrower uses a team of professionals: lawyer, realtor, accountant), and the trustee is well-experienced in this type of transaction.
  • Contribution Limits are NOT Affected
    The repayments back into your RRSP do not affect your contribution limits for the year—the money is simply being returned to you—along with the interest.
  • Wash, Rinse and REPEAT
    Best of all, when the invested money is returned to your RRSP, you have full control over what you want to invest the money in again—either another mortgage, or conventional instruments such as GIC’s bonds, stock or mutual funds.


  • This investment strategy is fully approved by the Canada Revenue Agency.
  • There are no set-up fees for you, the lender (when over $25,000 is invested).
  • The whole process takes place under the RRSP umbrella and profits remain tax sheltered.
  • You, the Investor, do not pay tax on the interest you receive because interest is accrued inside of your registered account.
  • This process is supervised and administered by a trust company: TD Waterhouse  Olympia Trust (acts as the trustee).
  • FYI, the certified cheque to purchase a property (using your RRSP money) goes to the trustee first, then to the real estate investor’s lawyer, then to the seller of the property. The mortgage payments are made through the trustee, directly into YOUR RRSP account, pulling the money directly from the real estate investor’s bank account—you don’t have to collect the payments yourself, this is all arranged for you.
  • To protect your privacy, the trustee’s name appears on the title of the property as the mortgage holder.
  • The trustee sends you, the account holder (the Investor), a printed monthly statement (TD Waterhouse  Olympia Trust), as well as access to an online statement.
  • All the documentation is prepared by a reputable law firm.
  • The terms of the mortgage can be very flexible. You (as the Investor) act as the ‘bank’ and as long as YOU are happy with the repayment arrangements that’s all that matters—there’s no 3rd party who will approve or disapprove the deal. It’s all up to you — YOU decide how, when and to whom you want to lend your money. YOU ARE IN COMPLETE CONTROL!

Important Clarification

Here is one misconception we encounter often: people think their money is leaving their RRSP and/or they think they are actually loaning the money so the borrower can buy a property. That’s not the case.

Here’s the best analogy I can give you. Visualize your RRSP program as a house. For years, you’ve been adding money to a “duffel bag” that’s stored in your living room where it “rests” — I can’t think of a better term for money that’s earning such small returns.

When you decide to invest in a private mortgage, the trustee (TD Waterhouse  Olympia Trust) takes your duffle bag of money from the living room to the exercise room downstairs, where your money will work much harder for a while.

After the borrower buys, fixes and sells (or refinances) the property, the mortgage is no longer needed and the trustee takes your duffle bag of money back to the living room — until it’s time for another deal when the money goes back to work hard. This process can be repeated many times so that your money will work hard for you.

Now, the two important things to realize through this analogy are that 1) Your money NEVER leaves the RRSP “house”, never leaves your control, the borrower doesn’t see it, touch it, or handle it in any way, and 2) the trustee is the key element in the transaction as far as you’re concerned, not the borrower. The trustee is working for YOU, because you are the trustee’s client, so they will take very good care of your money.

WHO qualifies as a potential “RRSP-Mortgage” investor?

There are three basic categories of people qualified to participate in this type of investment. They are:

  1. Current RRSP account holder (people who have their RRSP account somewhere already)
  2. New RRSP account holder (people who have cash to put into their RRSP but don’t have an account yet)
  3. Those with RRSP contribution room (people who have not made contributions, but have ‘credits’ that have accumulated – see your tax return)

An Arm’s Length Mortgage is available to people who have these types of registered investment accounts that are held at financial institutions:

  • RRSP: Registered Retirement Savings Plan
  • RRIF: Registered Retirement Income Funds
  • LIRA: Locked In Retirement Account

Eligible investments that can be used for Arm’s Length Mortgages include:

  • Stocks
  • Mutual Funds
  • Term Deposits
  • Debentures
  • Bonds
  • Gold & Silver Certificates
  • Equity Linked Notes
  • Guaranteed Income Certificates (GICs)

Arm’s Length Mortgages are eligible for ALL types of properties (residential, commercial, industrial, vacant / raw land, recreational) but NOT for mobile homes or house boats (because the property must be registered in the land registry system / land titles).

One caveat: the property for which the mortgage will be used MUST be located in Canada.

More than one lender can have an Arm’s Length Mortgage on the same real estate (for example, one person holds a first mortgage while another person holds a second mortgage, or two people pool their money and hold a first mortgage together).

Arm’s Length Mortgages are exactly what the name implies: ARM’S LENGTH—they CAN’T be used for self, parents, siblings, spouse, children, and in-laws.

What are the ‘roles’ of the main three parties involved?

There are several players in a transaction like this, each with various duties and responsibilities to play. They are basically as follows (but not limited to):

Real Estate Investor / Entrepreneur and team (that’s ME):
I find the deals and I construct the deals to buy with cash and mortgage funding (first and second mortgages). As the engineer of the deal, I must make sure that the other parties have ALL the information on every aspect of the deal that would be required for them to make sound, informed, and intelligent decisions. Typically, I set up the details of the mortgage with respect to term, interest rate, and payment schedules, for the RRSP planholder investor (that’s you) to consider, and then mutually agree to.

RRSP/Planholder Investor and advisors (that’s YOU):
Typically, this is a person disgruntled with the status quo mutual funds and stock-based funds for RRSP investing, and their lack of performance. They want to take control of their RRSP portfolio, and in order to do that well, they will educate themselves and take on the actions and responsibilities as the CEO of their retirement future. They will have some professional advisors in their corner for advice and consultation in handling their affairs.

The trustee is a financial institution (like TD Waterhouse Olympia Trust) that is set up as a stakeholder for the planholders of RRSP monies and their account. They accept the payments, monitor the regularity of them, and report to the planholder. They also co-ordinate, with the input and instruction of the planholder, the setting up of the account including any movement of funds being held with other institutions or brokerage houses.

Arm’s Length Mortgages are considered to be a sophisticated investor strategy.

If… you are a sophisticated investor

Or, if you would like to become a sophisticated investor

Or, if you are not satisfied with the returns you are getting on your RRSP, RRIF or LIRA account

Then, I suggest you consider using the funds available in any one of the above accounts for one or more Arm’s Length Mortgage(s).

If you want more information or to discuss the possibility of investing your RRSP’s into Real Estate, please subscribe to my SuccessLINK newsletter and you’ll be the first to know when the next opportunity arises!

Happy Investing!

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  • I have read few of articles on your blog and could say it was really interesting, thanks for sharing that.

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  • John DeLima

    My wife owns a 50% ownership on a small commercial building.

    The other 50% is owned by another couple who are NOT related to us

    Can we use her RRSP to found a second mortgage on this building which technically is to finance his 50%

  • Thanks for sharing that, I will save it Cheers


    I invested my RRSP money with a real estate company as 2nd mortgage. 1st mortgage taken by this company is from bank / finance company as secured loan. My RRSP investments are “Arm’s length mortgage” as per the document attached with the contract signed by President of the company and having company’s stamp embossed on it. I have given the notice for withdrawal of my RRSP investments matured in Nov.2010 and Feb.2011. But this company is not responding about return of my investments. As per your definition of Arm’s length mortgage, the investments are secured and safe but in view of getting no response from real estate company I am feeling miserable. Please advise.


    • Hi Rajendra, you need to contact your Trustee (ie: Olympia Trust or TD Waterhouse, etc…) They may be able to provide you with the contact person that they’ve dealt with in the transaction…

  • It?s actually a nice and helpful piece of info. I?m happy that you just shared this helpful information with us. Please keep us informed like this. Thank you for sharing.

  • Dave Richardson

    Hey Alain,

    Great article! You did a great job describing the process. Any sophisticated investor should consider this investment vehicle, and a this appears to be a creative way to maintain the tax deferral of your RRSP, while putting your money in a less volatile investment like real estate as opposed to a mutual fund. When you consider saving the fees associated with most fund managers, this becomes pretty attractive.

    Thanks for sharing!


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  • Pauline

    Q: Can an arm’s length mortgage, say $150,000, be used as part of the purchaser’s down payment on a condo listed for $375,000?