Posts Tagged mortgage tips
Get the Tax Deductible Mortgage by using the Smith Manoeuvre
Posted by Top Home Loans in General Banking, General Business, Mortgage Advice, Mortgage News, Retirement Planning on June 4, 2009
The rule that is in use is the rule that if you borrow money to invest in an income producing investment (eg. a investment property, an anuity, or a dividend paying stock), then you can deduct the annual interest that you paid on the investment through your annual income taxes.
Basically, if you borrow money to invest, then you can claim the interest paid on your taxes. Using this rule allows for you to take advantage of the Smith Manoeuvre.
How does this rule make a Mortgage Tax Deductible?
Mr. Fraser Smith has written a book on the topic, and with all the details to do this in all potential situations; however, it basically means that if you borrow money against the available equity in your home, invest it in income producing investments, and then use the tax return to pay down your mortgage. Repeat this process multiple times until you have a large investment portfolio, a house that is paid in full, and an investment loan. If you have invested successfully, then you should have a portfolio that is several times larger than your outstanding loan. This sounds complicated, but it is really quite simple.
The Smith Manoeuvre Process
- Sell all existing stocks from your non-registered investment accounts. Use these funds to pay down your outstanding mortgage balance, or as a down payment on a new purchase.
- Get a readvanceable mortgage. This means that as you pay down your mortgage loan, you will have a secured line of balance limit that will increase. The more you pay down your mortgage, the higher your balance on the secured line of credit. You need to have at least 20% of your home paid off to be able to get a secured line of credit. Many banks offer this form of product. Make sure that you ask your bank if they offer this product before signing up for a mortgage.
- Take all the money you have available on your secured line of credit and invest it in income producing investments. With every mortgage payment, your secured line of credit will increase, so continuously increase the amount of money you are investing in your income producing investments. Make sure that you are investing in non-registered accounts, and not RRSPs or a TFSA. This is because only the non-registered accounts will allow you to write off the interest.
- When it comes time to file your taxes, deduct the total amount of interest that you paid on your secured line of credit throughout the year. Depending on your tax bracket, you may get up to 40% of the interest paid back on the money invested.
- Use your tax return and investment income to pay down your mortgage balance, then use the increasede credit limit in your secured line of credit to invest more.
6. Repeat this process until your mortgage is paid in full.
The Disadvantages of the Smith Manoeuvre
- This is leveraged investing, so it is not for people who are not good with risk.
- Your mortgage will never be paid off as long as you keep the tax deductible loan. You will be able to continuously deduct the interest of this loan as long as you keep the investments.
- Make sure you have a second savings account in case property values depreciate.
The Advantages of the Smith Manoeuvre
- The secured line of credit is completely tax deductible.
- You get to pay off your non-deductible mortgage quickly.
- You get to create a large investment account while paying down your mortgage, not waiting until after.
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Thirty Percent of People Renew There Mortgage with No Questions Asked
Posted by Top Home Loans in General Banking, Mortgage Advice, Mortgage News, Mortgage Rates on March 31, 2009
Renewing your mortgage is something that happens to everyone once every several years. In most cases, it becomes a responsibility that gets pushed to the side and gets forgotten about. For most people, this is not a major responsibility in their life. It is much easier to check a box beside a product and mail in the piece of paper, then it is to actually do a bit of work and find out what you are missing out on.
What you are Being Offered
When mortgage companies send you a renewal document, they are generally providing you the worst interest rates on the market in hopes that you do exactly what they want you to do, check a box and mail it in; however, by making one simple phone call to the bank, you can usually get a much lower interest rate then what is listed on the form that they send to you. You can usually get a rate that is up to one percent lower than what they have offered.
Some mortgage companies even go to extreme lengths by charging you a fee to renew your mortgage citing it as a renewal fee. Another pitfall is for people that do not renew their mortgage, the bank will potentially take the liberty to renew you into the same exact product that you already have on the renewal date. This is usually horrible because the rate is usually higher, and you now would have to pay a penalty to break your term to get a lower interest rate.
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Get the Best Rate for your Mortgage Renewal
The best way to ensure that you are getting the lowest possible interest rate on your mortgage renewal is by using the following steps:
- Mark your mortgage renewal date on your calender, even if it is 5, 10, or 25 years in the future, you should be aware of when it is. You can do this by marking it down on your online calender or by sending yourself an email.
- Within 4 months of your mortgage coming up for renewal, start checking and comparing rates between banks on a bi-weekly basis. Keep in the know when it comes with mortgage rates. Negotiate your rates early and often.
- Speak with a mortgage to see what they have to offer in comparison to what the bank is offering you.
- Don’t be afraid to switch your mortgage to another bank. Banks are in the business to make money, and if another bank is willing to give you a better deal, then take the better deal. At the end of the day, your pocket book is what matters.
- Schedule time to deal with the mortgage and to speak with a mortgage broker over the phone.
Mortgage Renewal Service
Now we offer a mortgage renewal service where a mortgage professional will contact you close to when your mortgage is renewing. They will provide you with the knowledge and tools for what you need to know and do to renew your mortgage and save the most amount of money. They will also assist you with any financial needs you may have at that time. For example if you are thinking of moving, renovating, investing, clearing up debts, education, or anything else, then they will provide you with the expert advice to assist your needs while saving you the most money. Please enter your details below to get started.
Don’t Sign Away Thousands
Instead of letting stress get the better of you next time you receive a mortgage renewal paper. Instead throw it in the trash and speak with a mortgage professional before proceeding with any renewal. Better yet, sign up and have a professional contact you when your mortgage is coming up for renewal.