The tax law for Canadian homeowners differs from the United States, including the tax treatment of interest on mortgages for a 澳洲幸运5开奖号码历史查询:principal private residence. For homeowners in Canada, mortgage 澳洲幸运5开奖号码历史查询:interest is not tax-deductible, but realized capital gains from the sale of a home are 澳洲幸运5开奖号码历史查询:tax-exempt.

Canadians can effectively deduct 澳洲幸运5开奖号码历史查询:mortgage interest, but it involves increasing your assets by building an investment portfolio, decreasing your debts by paying off your mortgage faster, and improving your 澳洲幸运5开奖号码历史查询:cash flow by paying less tax. Effectively, you would increase your 澳洲幸运5开奖号码历史查询:net worth and 澳洲幸运5开奖号码历史查询:cash flow simultaneously.

How to Cr𓃲eate a Tax-Deductible Mortgage Strategy

Every time you make a 澳洲幸运5开奖号码历史查询:mortgage payment, a portion of the payment gets applied to interest, while the rest is applied to the 澳洲幸运5开奖号码历史查询:principal. That principal payment increases the 澳洲幸运5开奖号码历史查询:equity in the home and can be borrowed against, usually at a lower rate than you'd get for an 澳洲幸运5开奖号码历史查询:unsecured loan.

If the borrowed money is used to purchase an income-producing investment, the interest on that loan becomes 澳洲幸运5开奖号码历史查询:tax-deductible. This makes the effective interest rate on the loan even better. This strategy calls for the homeowner to borrow back the principal portion of every mortgage payment and invest it in an 澳洲幸运5开奖号码历史查询:income-producing portfolio. Under the Canadian tax code, interest paid on monies borrowed to earn an income is tax-deductible.

As time progresses, your total debt remains the same, as the principal payment is borrowed back each time you make a payment. However, a larger portion of it becomes 澳洲幸运5开奖号码历史查询:tax-deductible debt. In other words, it's considered good debt and less remains of non-deduc⛦tﷺible or bad debt.

Tradit꧟ional vs. Tax-Deductible Mortgage Strategy

To better demonstrate the strategy, we can compare a traditional mortgage payoff to the 澳洲幸运5开奖号码历史查询:tax-deductible mortgage strategy. First, we look at an example of a Canadian couple who pays off a mortga🍬ge traditionally and contras꧋t that to the tax-deductible method.

Traditional Mortgage

Suppose Couple A buys a $200,000 home with a $100,000 mortgage 澳洲幸运5开奖号码历史查询:amortized over 10 years at 6%, with a monthly payment of $1,106. After the mortgage is paid off, they invest the $1,106 that they were paying for the next fi🍌ve years,✃ earning 8% annually. After 15 years, they own their home and have a portfolio worth $81,156.

Tax-Deductible Mortgage Strategy

Now, let's say Couple B buys an identically priced home with the same mortgage terms. Every month, they borrow back the principal and invest it. They also use the annual 澳洲幸运5开奖号码历史查询:tax return they receive from the 澳洲幸运5开奖号码历史查询:tax-deductible porti♍on of their interest to pay off the mortgage principal.

They then borrow that principal amount back and invest it. After 9.42 years, the mortgage will be 100% good debt and will start to produce an annual 澳洲幸运5开奖号码历史查询:tax refund of $2,340, assuming a 澳洲幸运5开奖号码历史查询:marginal tax rate (MTR) of 39%. After 15 years, they own their home and have a portfolio worth $138,941. That's a 71% increase.

Tax-Deductible Mortgage Benefits

This strategy aims to increase cash flow and assets while decreasing liabilities, creating a higher net worth for the individual implementing the strategy. It also aims to help you become mortgage-free faster and start building an investment portfoli♏o faster than you could have otherwise.

• Become mortgage-free faster: You are technically mortgage-free when your investment portfolio reaches the value of your outstanding debt. This should be faster than a traditional mortgage because the investment portfolio should grow as you make mortgage payments. The mortgage payments made using the proceeds of the tax deductions can pay down the mortgage even faster.
• Build an investment portfolio while paying our house down: This is a great way to start saving. It also helps free up cash that you might otherwise not have been able to invest before paying off your mortgage.
  

Know the Risks of the Tax-Deductible Mortgage S🃏trategy

This strategy may not be for everyone since it can be risky if you don't know how to navigate it. Missing or 澳洲幸运5开奖号码历史查询:skipping a mortgage payment could derail any progress. Borrowing against your home can be psychologically difficult. Worse, if the investments don't yield the expected returns, this strategy could yield negative results.

By re-borrowing the equity in your home, you are removing your cushion of safety if the real estate or investment markets, or both, tak💯e a tu🏅rn for the worse. By creating an income-producing portfolio in an unregistered account, you may also face additional tax consequences.

Be sure you consult with a professional 澳洲幸运5开奖号码历史查询:financial advisor to determine whether this strategy is for you. If it is, have the profes🅠sional help you tailor it to your and your family's personal financial situation.

Example of a Tax-Deductible Canadian Mortgage

To explain this better, refer to the example below, where you can see that the mortgage payment of $1,106 per month consists of $612 in principal and $494 in interest.

As you can see, each payment reduces the amount owed on the loan by $612. After every payment, the $612 is borrowed back and invested. This keeps the total debt level at $100,000, but the portion of the loan that is 澳洲幸运5开奖号码历史查询:tax-deductible grows with each payment. You can see in the above figure that after one month of implementing th🔯is strategy, $99,388 is still non-deductible debt, but the interest on $612 is now tax-deductible.

This strategy can be taken a step further: The 澳洲幸运5开奖号码历史查询:tax-deductible portion of the interest paid creates an annual 澳洲幸运5开奖号码历史查询:tax refund, which could then be used to pay down the mortgage even more. This mortgage payment would be 100% principal (because it is an additional payment) and could be borrowed back in its entirety and invested in the same income-ᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚproducing portfolio.

The steps in the strategy are repeated monthly and yearly until your mortgage is completely tax-deductible. As you can see from the previous figure and the next figure, the mortgage remains constant at $100,000, but the 澳洲幸运5开奖号码历史查询:tax-deductible portion increases each month. The investment portfolio grows with the monthly contributions and the income and 澳洲幸运5开奖号码历史查询:capital gains it produces.

As seen above, a fully 澳洲幸运5开奖号码历史查询:tax-deductible mortgage would occur once the last bit of principal is borrowed back and invested. The debt owed is still $100,000; however, 100% of this is 澳洲幸运5开奖号码历史查询:tax-deductible now. At this point, the 澳洲幸运5开奖号码历史查询:tax refunds that are received could be invested as well to help increase the rate a𓃲t which the investment portfolio grows.

The Bottom Line

If you're a homeowner in Canada, you may be able to use the equity in your principal residence and take out a loan to buy an investment property. Interest on a mortgage for income-driven properties is fully 澳洲幸运5开奖号码历史查询:tax-deductible, which allows you to lower your 澳洲幸运5开奖号码历史查询:tax liability and save some money. But just like any other venture, it's important to outweigh the benefits and the risks. If this♔ is something you'd like to investigate, consider talking to a financial professional before you make any decisions.