Tax Deductible Mortgage

How does it work?  This is probably the first question entering your mind now.

Here at Homeguard we look out for our custom’s needs and future.  The tax deductible mortgage plan is powered by a new financial technique powered by the Smith Manoeuvre.  How it works is the Mortgage Plan converts regular debt into a tax deductible investment line of Credit that generates Tax Refunds.

What is a tax deductible Mortgage?

Simplified, it is a concept which you structure your mortgage so that it is tax deductible.

You can make it happen!  The concept works like this, Canada Tax and Revenue Agency have a tax rule that which if you borrow money to invest in an income producing investment (like a dividend paying stock or investment property), you can deduct the annual interest paid on the investment loan from your income tax. 

SMITH MANOEUVRE

There are several ways that the Smith Manoeuvre approach can be applied to suit different interests.  Your Smith Manoeuvre Mortgage Professional and SMFC financial planner will work with you to implement the right program with the most suited set of financial products and investments to suit your individual needs and investment objectives.

There are 2 Types of Smith Manoeuvre Theory’s

1. Smith Manoeuvre (Straight Forward)

Re-borrow and invest the monthly principal repayments on the mortgage through a readvacable line of credit mortgage.  Use the borrowed back funds to pay back the tax deductible interest on the reavanced line of credit debt first then invest the net amount in a suitable mutual fund investment.  SMFC will help you apply any tax refunds from the readvanceable line of credit interest expense against the mortgage then borrow the same amount back to invest.

a.  Sell all existing stock from non-registered investment accounts and use it towards a down payment for step b.
b. Obtain a re-advancable mortgage.  This is a mortgage that has 2 entities, the home equity line of credit (HELOC 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 the Smith Manoeuvre.  Note that you usually require at least 20% equity/down payment before you can obtain a re-advancable mortgage.

c. Use the HELOC portion of your mortgage to invest in income producing entities like dividend paying stocks or rental property.  With every mortgage payment, your HELOC limit will increase.  So with every regular mortgage payment, you will invest the new money in your HELOC.  Note that you SHOULD NOT use the HELOC money to invest in your RRSP as you will lose the tax deduction on the invested money.

d. When tax season hits, deduct the annual amount of interest that you paid on your HELOC against your income.  So if you paid $30,000 in interest payments for the year and you have marginal tax rate of 40%, you will get back $12,000 of it.

e.  Apply the tax return and investment income (dividend etc.) against your non-deductible mortgage and invest the new money that’s now in your HELOC.
Repeat steps 3-5 until you non-deductible mortgage is paid off.

2. The “Freeboard Equity” Smith Manoeuvre Program

Through the readvancable line of credit mortgage, use the equity available between your current mortgage balance and the credit limit of up to 75% of the current value of your home (coined by Fraser Smith as “Freeboard Equity” to invest in a suitable cash flow generating mutual fund.  Use the monthly cash distributions from that fund to pay down the mortgage principal first.  Then re-borrow to pay the readvanceble line of credit tax-deductible interest and invest the net amount into your “pension Plan” Apply any tax refunds from the readvanceable line of credit interest expense against the mortgage then immediately re-borrow and invest the proceeds into your pension plan account.

Contact Wayne Sudsbury Homeguard Funding Ltd. for further information at 1 (800) 225-1777 ext. 125