Since the Canadian tax code tells us that interest on a mortgage for a private home is not tax deductible, mortgages becoming tax deductible may seem like its impossible to achieve legally. But there is a way!
It is possible to make your mortgages tax deductible, but requires some financial re-arranging. Part of every mortgage payment you make goes towards interest, and the rest of your mortgage payment is going towards what is called the principle. You can borrow against the principle and if the money you borrow gets invested towards something income producing, like renting out a property, then the interest on the tax becomes deductible. It is best to have this planned out with a financial adviser before making the decision. You don’t want any negative affects happening to your most important payment being the mortgage.
This may sound scarier than it actually is, but understand the big picture. What your doing is re-borrowing money against your principle payment and investing it into something producing an income. Since the interest on an income producing investment is tax deductible, you are basically making your mortgage tax deductible. The principle of money borrowed has to be paid back each payment and re-invested, over time, your investment portfolio grows and you will have larger portions being tax deductible. An investment portfolio is also a great way to save and free up money for investing.
Next for those wondering “are mortgages tax deductible?”, is taking it a step further and being eligible for an annual tax refund. Eventually, the mortgage becomes 100% principle, which you can borrow back and re-invest into your income-producing portfolio. Repeating this over time will eventually have your mortgage completely tax deductible, which answers the question “are mortgages tax deductible?”. But this takes patience, remember the tax deduction part grows monthly so your mortgage can’t be tax deductible over night.
Now, this strategic move may not be for everybody and remember that re borrowing your home equity is taking away that safety cushion if your investment amount doesn’t equal the expected return. But if the return is larger than the loan payment, you’re good to go! If your thinking of looking into making your mortgages tax deductible, Canada revenue agency provides a calculator to determine if your eligible or not. But if your eligible, you have the opportunity to change the reason in borrowing money, from the reason of going towards your personal mortgage payment, into borrowing for investing, allowing you to create a tax refund.
Everyone dreams of the day they can say that they are mortgage free. So when your investment portfolio reaches an equal amount to your outstanding debt, you are considered debt free! Still asking yourself, “are mortgages tax deductible? ” Just remember, if you play it safe and take the right steps of action in cashing out your non-registered investments to pay off your mortgage, using a line of credit against your house, and then buy back your investments, you are able to legally make your mortgage tax deductible saving thousands of dollars over time!