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.
I hope this helps you understand this important misconception.
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