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Wouldn't you sooner be earning the 7.15% the bank collects from customers on their 5 year fixed term mortgages than the 3.20% they pay on guaranteed investment certificates (GIC) in your RRSP, RRIF or LIF? You can you know.

If you're looking for a high quality fixed income investment for your RRSP look no further than your own family. You can hold a residential mortgage as an investment in a self-directed retirement savings or retirement income plan. There are several hoops to jump through to put it in place but it could very well be worth your while.

Of course there are some limitations, so let's get to that. First, a related person must own the mortgaged property. CRA refers to that as being a "non-arm's length" person (i.e. individuals connected by blood relationship, marriage, common-law partnership, or adoption).

Although it can be, this means that it doesn't necessarily need to be your own mortgage, as long as it's a related (non-arm's length) person under CRA's definition. So if you have already paid your mortgage off, you can fund a mortgage your child has or is getting at the bank. They get the mortgage rate they would have gotten anyway at the bank and you get an investment paying you the current mortgage rate for the term they select.

Given the costs involved in setting it up, this really only makes sense if the mortgage being considered is more than $50,000. It also is appropriate to use only the portion of your retirement assets you would normally invest in a long-term bond or GIC. If for example that is 25%, with the previously mentioned $50,000, your total retirement account should be at least $200,000.

There are some one-time costs and some ongoing costs that break down as follows: There is an initial set-up fee that will run you approximately $400. There is an appraisal and mortgage insurance application fee that will run you another $250 or so. Then it's reasonable to expect to pay another $175 or so in annual RSP administration fees.

In order for a non-arm's length mortgage to be considered an eligible investment for a RRSP or RRIF plan the government requires that the mortgage be insured by either Canada Mortgage and Housing Corp. or GE Capital Insurance Canada. Depending on the amount of equity the mortgagor has in their home this cost will range from 0.50% to 3.0% of the mortgage principal. This amount is typically added to the mortgage and financed.

While there are a lot of things happening in the background between your self-directed retirement account and the bank, what this will look like to the investor is simply a single line on their RRSP or RRIF account statement showing an investment in a mortgage at whatever rate is being paid. To the borrower, they simply make their mortgage payments to the bank as they normally would, weekly, bi-weekly or monthly.

This is not a strategy that will be beneficial for everyone, but if it works for you it can be a solid fixed income investment in your RRSP at a time when returns on equity investments are challenged, and GIC rates are low..

If you are interested in exploring this investment option in your RRSP or RRIF, please speak with your financial advisor or banker. They can help you understand the intricacies and to assess if it is a viable alternative for you to consider.