Most Canadians use their TFSA or RRSP for mutual funds, GICs, or stocks, never realizing there is another option that can deliver stronger, more predictable returns backed by real Canadian real estate. Private mortgage investing has long been used by institutional and high-net-worth investors to generate steady income; at Spark Mortgage, we have made it accessible to everyday Canadians with a minimum of just $10,000.
Here is everything you need to know before getting started.
Which Accounts Are Eligible?
You can invest with Spark Mortgage through several account types:
- Tax-Free Savings Account (TFSA)
- Registered Retirement Savings Plan (RRSP)
- Registered Retirement Income Fund (RRIF)
- Locked-In Retirement Account (LIRA)
- Non-registered personal accounts
To invest through any registered account, you will need a self-directed account held at a qualified Canadian trust company. This is a straightforward process, and we are happy to point you in the right direction if you have not done it before.
How Are Returns Taxed?
The tax treatment of your investment depends entirely on which account you use.
TFSA: All interest income earned inside a TFSA is completely tax-free, including withdrawals. For many investors, the TFSA is the most tax-efficient way to hold private mortgage income.
RRSP / RRIF: Contributions may be tax-deductible, and your investment grows tax-deferred. You will pay income tax on withdrawals in retirement, ideally when you are in a lower tax bracket.
LIRA: Similar tax treatment to an RRSP, with certain restrictions on withdrawal timing.
Non-registered: Interest income is included in your taxable income for the year it is earned, at your marginal tax rate.
We always recommend speaking with your accountant or financial adviser to determine the right structure for your personal situation.
Minimum Investment
Spark Mortgage’s minimum investment is $10,000. This entry point makes it possible to participate in private lending without overconcentrating your portfolio in a single deal. Many of our investors start with one mortgage and add to their position over time as they become comfortable with the asset class.
How Spark Structures Deals
Spark Mortgage originates, underwrites, and administers every mortgage we bring to investors. Here is how the process works:
- We receive and assess a mortgage application from a borrower, including a property appraisal and review of the borrower’s financial situation.
- Once approved, we present the opportunity to investors with full details on the property, loan amount, security position, term, and interest rate.
- Your funds are deployed into the mortgage, and you receive interest payments for the duration of the term.
- When the mortgage is paid out, your principal is returned.
We handle all administration throughout the term, so you earn passive income without headaches or day-to-day management.
Risk and Security: 1st vs. 2nd Mortgages
Your security position on the property is one of the most important things to understand before investing.
1st Mortgage: As a first-position lender, you are first in line to be repaid if a borrower defaults or the property is sold. This is the strongest security position and carries the lowest risk, typically at a more moderate interest rate.
2nd Mortgage: As a second-position lender, you are repaid only after the first mortgage has been settled. This position carries more risk, and is priced accordingly with a higher interest rate to compensate.
We are transparent about the security position on every deal we present. You will always know exactly where you stand before committing your funds.
Frequently Asked Questions
How do I get started? Fill out our investor intake form and we will walk you through the entire process, including how to set up a self-directed account if needed.
Are private mortgages safe? Every Spark investment is secured by real Canadian property. We conduct thorough due diligence on every deal, including independent appraisals and a review of the borrower’s ability to service the loan.
How long are typical terms? Most of our private mortgages run for 1 year, though terms vary by deal. You will see the exact term before committing.
What returns can I expect? Returns depend on the mortgage position, loan-to-value ratio, and term. View our Investor page for current opportunities and rates; we are always upfront about what you can expect to earn.
Can I invest across multiple mortgages? Yes, and many of our investors choose to diversify across several deals to spread risk. Each mortgage is presented as a separate opportunity, so you have full control over where your money goes.
What happens if a borrower does not repay? As a secured lender, you have recourse through the property. Spark manages any enforcement process on your behalf.
Ready to Put Your Registered Savings to Work?
Private mortgage investing is a straightforward way to earn reliable, real estate-backed income; and when held inside a TFSA or RRSP, the tax advantages can be significant. At Spark Mortgage, we take care of the details so you can focus on growing your wealth.
