Banks have pulled back on their willingness to facilitate mortgage investment as part of self-directed RRSPs -- a move with the potential to limit client access to this increasingly important vehicle.
“People used to be able to use their RRSPs to fund mortgages – whatever kind of mortgage they wanted to fund,” David O’Gorman, president and principal broker of MortgageLand Inc. tells WP. “And now (they) can’t do that through the bank; there are only three companies that allow you to do it: Home Trust, Community Trust and Great Western.”
While the self-directed RRSP is increasingly drawing client interest, the ease of deploying those investment dollars to fund mortgages is more an more restricted, say mortgage brokers facilitating those private lending deals.
“You call the shots on what you want to invest in, whether its stocks or mortgages – and not necessarily bank-run mutual funds – and you could put the RRSP money with a borrower to fund a mortgage,” O’Gorman said. “(And they can be used to) fund other peoples’ mortgages.”
The knock-on effects are also a challenge. With banks – and lenders in general – declining to facilitate self-directed RRSP investments in mortgages, some retail clients have begun to question the soundness of those deals.
“It’s made it more difficult for people to do these sorts of investments,” O’Gorman said. “They think that if the banks aren’t doing it, it isn’t safe.”
Though there are risks – as there are with any other investment – they are a way of injecting more money in the marketplace. And lenders refusing to allow these investments are essentially limiting the competition, according to O’Gorman.
“It’s starting to take some of the private money out of the marketplace and it’s the bank’s intent to limit the potential of competition,” he said. “It’s taking an option away from the investor and from the broker. It’s less money available to do mortgages.”
Still, there are a few lenders who allow self-directed RRSPs.
However, “most of those companies that are set up to do it are reasonably small,” according to O’Gorman.