How to make your mortgage tax deductible
TAX DEDUCTIBLE MORTGAGE
- The objective
Your debt, your mortgage, is paid for with your after tax dollars, and generates no deductible interest. The task at hand is to learn how to do what the wealthy do –convert the mortgage loan from bad debt with non deductible interest to good debt where the interest is tax deductible.
The ultimate objective being to increase your net worth.
- How does it work?
- Sell all existing non registered assets, such as GIC’s Canada Savings bonds, savings accounts etc and use the money to pay down your existing mortgage.
- Obtain a readvanceable mortgage. This is a mortgage that has 2 entities, the home equity line of credit and the regular mortgage. Nothing unique about this setup EXCEPT that as you pay down the mortgage, the credit limit on the HELOC increases. This is a key feature that is needed when implementing this method. Note that you usually require at least 20% equity /down payment before you can obtain a readvanceable mortgage. Some financial institutions that offer these mortgages are;
RBC-The Homeline Mortgage
Firstline-The Matrix Mortgage
Manulife- Manulife ONE Mortgage
BMO-Readiline Mortgage
3. Use the HELOC portion of your mortgage to invest in income producing
Entities like dividend paying stocks or rental properties. With every
Mortgage payment, your HELOC limit increases. So with every regular
Mortgage payment, you will invest the new money in your HELOC.
4. When tax season hits, deduct the annual amount of interest that you paid
On your HELOC against income.
5. Apply the tax return and investment income (dividends etc) against your
Non-deductible mortgage and invest the new money that’s now in your
HELOC.
6. Repeat steps 3-5 until your non-deductible mortgage is paid off.
7. This system requires no additional cash flow. The interest on the tax
Deductible loan can be either capitalized or come from a reduction of the
Principle reduction of the non deductible mortgage.
As you can see, this process will pay down your regular mortgage in a hurry, as well as building an investment portfolio and increasing your overall NET WORTH
