Leading a revolution in the mortgage business, author Fraser Smith is teaching Canadians how to catch up to their U.S. counterparts and make their mortgages tax-deductible.
In Canada, mortgages are not tax-deductible but interest payments on money borrowed to create wealth or to make investments are deductible and there are a number of ways to do it.
"Converting your mortgage to one in which interest payments are tax-deductible also forces you to make investments so the advantages are two-fold," said Smith, author of The Smith Manouevre. "You don't need any new money and by the end of a mortgage, the numbers could be huge."
Under Smith's system, let's say a homeowner starts out with a $200,000 mortgage and each monthly payment on the principal is re-borrowed and used to buy investments. The interest payments on that re-borrowed amount are tax-deductible.
Smith said that gradually the mortgage drops to zero while the investment portfolio soars, fueled by the re-borrowed principal payments.
"You're making those interest payments anyway so why not convert them into tax-deductible payments," said Smith who spoke Wednesday night to 250 homeowners, tax planners and investment advisors at the Caboto Club.
There are now mortgages on the market which are designed to follow Smith's process and automatically re-borrow principal payments on a monthly basis.
Smith said "houses don't provide retirement income, investment provides income and these new mortgages are designed to gradually change over the mortgage from one in which the interest payments are not deductible to one in which they are."
Mortgages can also be made tax-deductible by a process known as an asset swap because if you borrow money to create money, the interest payments are deemed tax-deductible.
The vast majority of people who hold mortgages also have other investments such as mutual funds which must first be sold or cashed in.
Once they're cashed in, the funds can be used to pay down your mortgage after which you can arrange a new mortgage and use the new funds to reclaim the investments you sold.
You now have the same level of investments as before and you have a new mortgage but because the money borrowed against the home now creates wealth, the interest payments are tax-deductible.
;)
Links;)
Tags (Tag Cloud);)
Archives.jpg)
