Self Directed RIF Mortgage

Leveraging, renting vs owning, making an investment or buying a home?
Post Reply
jasondejean
Newcomer
Newcomer
Posts: 2
Joined: 05 Feb 2016 12:25

Self Directed RIF Mortgage

Post by jasondejean »

Looking for some help, I'm not well versed in self directed mortgages. I have a client whose got a RIF with approx. $300K. He has equity in his property and so does his son. His son has run into credit difficulties and owes approx. $100K. The client with the RIF would like to help out and is thinking about using that as the fixed income portion to his RIF. As I understand he could do that with his rif if his paying out a mortgage. Could he add a mortgage to his property or his sons for $100K they convert that to the RIF and have his son make the mortgage payments? I hope that makes sense I know I find it confusing. The alternative would be to just use the equity in his property to help the son out, there's a host of issues related to paying off that and the reasons he got into this situation for now I'm just concerned with the logistic and if its possible. Thanks in advance!
twa2w
Veteran Contributor
Veteran Contributor
Posts: 2054
Joined: 22 Feb 2005 13:08

Re: Self Directed RIF Mortgage

Post by twa2w »

At one time I did a few of these but it has been sometime so take this for what it is worth.
Your rsp or rif can indeed hold a mortgage on your house.
It can be challenging to find a company willing to do this and complete all the steps. First your rif has to be with a trustee that will handle non arms length mortgages. Then there has to be sufficient free cash in the rif.
Then you have to have sufficient equity in the house to secure the motgage.
Then arrange the mortgage. You will be looking at a bunch of fees
An initial set up fee from your lender. Approximately $300
Start-up legal and appraisal fees. Approximately $500 to 1000.
Annual administration fees, charged by the lender. Approximately $200/year
CMHC fees of around 0.5% of the mortgage prin or higher depending on loan to value.
Annual self-directed RRSP administration fees. Approximately $150 per year
Interest rate has to be set at normal mortgage rates.
Essentially what you do is set up a mortgage on the house in a format acceptable to rif self directed rules. The mortgage is disbursed and the debts paid off. The rif then takes out the free cash and buys the mortgage from the mortgage company. Money goes to mortgage company and rif now has a mortgage as one of its investments. In reality this is done simultaneously.
Now payments have to be made to the rif. If not the trustee will foreclose on the house.

Besides the cost and the hassle of setting up, here are some issues.
The rif now has a large nonliquid investment. The rif will have a monthly stream of income coming in from the payments that will have to invested or sit in cash earning nothing.
The rif will have to have other assets to pay the annual rif payments. At some point, when those other assets are gone and rif payments rise over time, there may not be enough free cash to fund the rif payments. At this point the mortgage will have to be sold back to mortgage company and the rif will have a lump of cash.
How healthy is the client. Does he want to deal with all these issues now and in the future when he is much older.
Personally I would keep mortgage and rif separate.
I know parents are always willing to help kids but at what age do you cut the apron strings and how does kid learn to be self sufficient if parents are always bailing him out. Is the parent compromising his life style / retirement to help kid.
IMHO, the best thing this parent could do for this kid is to say, sorry you are on your own. Tough love.
Sorry just my opinion.
jasondejean
Newcomer
Newcomer
Posts: 2
Joined: 05 Feb 2016 12:25

Re: Self Directed RIF Mortgage

Post by jasondejean »

Thank you so much for the clear concise information! Great points and great explanation!
Post Reply