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A lot of angles to take on this one, so I'll only cover a couple.

Negotiate a rate of return that is fair to both of you. Let free market principles govern as much as possible. If you think you can do better elsewhere, then you can walk. If he thinks he can do better elsewhere, then he can take his dollars elsewhere.

You do gain a fair benefit by having your loan held by a benevolent benefactor. You state that you are not in a position to pay additional lump sum mortgage reduction payments. I'd think hard before giving up this advantage, since you don't have a lot of flexibility in your budget.

Also remember that your dad probably could have put that 150k in a 5-year GIC three years ago for 3-4% (I'm guessing here for argument's sake). He chose to tie up that money with you instead.

Remember to keep things friendly but fair.
 

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But the way I see it, had my dad put his money elsewhere at 3-4%, he would have paid income taxes on the interest earned, netting 2-2.5%. Whereas with me, interest earned is tax free (net 3.75% this year).
Not a tax expert, but doesn't the CRA expect your dad to claim interest income on inter-family loans?

Brings me up with another question; if I do have money to invest, small sums like 5K, additional payments on the mortgage or something else?
Impossible question! Your paragraph above answers it quite well, for you, and in hindsight.
 
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