The Tax Deductible Mortgage Strategy is a way for Canadians to make their mortgage interest tax-deductible. While Americans can already claim their mortgage interest on their tax returns, this strategy lets Canadians achieve a similar benefit.
Here’s how it works: In Canada, if you borrow money to invest in income-producing assets like stocks or rental properties, you can deduct the interest on that loan from your income taxes. With this strategy, you borrow against the equity in your home, invest that money in income-generating assets, and then use your tax return to pay down your mortgage.
Repeat this process over time, and you’ll eventually turn your mortgage debt into a tax-deductible investment loan, all while building a larger investment portfolio.
This strategy uses a unique mortgage product called a re-advanceable mortgage. It’s a mortgage and Line of Credit product that when you pay your mortgage payment, the line of credit grows in size. This allows you to borrow more to invest.
In a nutshell, the Tax Deductible Mortgage Strategy helps you pay off your mortgage faster, save money on taxes, and grow your investments for the long term.
Meet Alex and Taylor, a couple living in Alberta with big plans for their financial future. They recently bought a home valued at $600,000 and have a mortgage balance of $400,000 at a 5.5% interest rate over a 27-year amortization period. With a household income of $120,000, Alex and Taylor want to pay off their mortgage faster and grow their investments. That’s where the Tax Deductible Mortgage Strategy comes in.
Net Worth Improvement
By sticking with the Tax Deductible Mortgage Strategy they’ll have a projected investment portfolio of $787,891.30, based on an investment return of 8%. They’ll also have a fully tax deductible investment loan of $390,000.00. Their net worth improvement would be $397,891.30.
Years Saved
By using this mortgage strategy, they’ll pay off their mortgage by year 19 and month 7. This means paying off the 27-year mortgage faster by 7 years and 5 months.
While the Tax Deductible Mortgage Strategy can offer significant benefits, it’s important to be aware of the potential drawbacks. Here’s a closer look at the cons: