Canada TFSA lending

[Matt Geerts]

I want to start pitching the idea to some family and friends to lend money to me at x%, secured by properties that I am buying under value and instantly investing money in to improve.

Trying to search the internet for TFSA mortgages brings up a thousand blogs about whether you should invest in your TFSA or pay your mortgage, so I can't find any information for what I'm after.

The question is, what are the mechanics of a lender lending this money to me? Do they need a financial institution to register the TFSA? Are they bound by the same mortgage regulations as if it were an RRSP (forced CMHC on non-arms-length and max 80%LTV on arms length)?

I expect that I'll be paying one of our lawyers to draft the mortgage doc according to our terms, establish the lein, etc.

Can someone either feed me a document explaining all of this, or write it down in step-by-step instructions for who needs to get what done by whom? 

Keywords to set off all the Canuck alerts: Canada Ontario Toronto Vancouver RRSP 

[Roy N.]

@Matt Geerts

Yes, there are only four (CWT, Olympia, Laurentian B2B, Eastern Trust) remaining providers of trustee services for registered accounts which allow arm's-length mortgages to be held/serviced within the account (of which I am aware).  Registered accounts include {self-directed} RSPs, RIF/LIF, TFSAs.

Olympia or CWT would not be originating the loans (@Stanley Kong), they would merely be the trustee (of the registered account) and servicer (of the note).  It is up to the lender (the registered account, or, in reality, its beneficiary) to do their own diligence, write the note and subscribe to the mortgage.  Olympia is saying they'll allow the originator of the loan complete autonomy (enough rope to hang themselves) while CWT is offering a little less rope. 

While a non-arm's length mortgage (i.e. if you lend to yourself or to (or for the benefit of) an immediate family member) must be insured (via CMHC, Genworth or Canada First), this is not (necessarily) a requirement of an arm's length mortgage (if the borrower was placing the mortgage on their primary residence, I am not certain if it would be necessary to insure it over an LTV of 80% - but would be prudent to do so). If you were writing a commercial note at 90% LTV, it would not need to be insured, but generally the interest rate climbs along with the risk.

When choosing a trustee, be aware of the liquidity requirements they may impost.  B2B recently (2-3 years ago) increased their liquidity requirements such that you must retain 50% (RSP) - 75% (LIF/RIF) of the mortgage value in your account.

BTW:  It appears that Community Trust Company Ltd in TO is offering trustee service (and servicing) for arm's-length mortgages in a registered account.