What is an Arm’s Length 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):
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 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.


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