In Canada the most known method of making a mortgage tax deductible is by utilizing the Smith Maneuver, popularized by its namesake Fraser Smith. The Smith Maneuver looks like this:
- Acquire readvancable mortgage (these mortgages have LOC's attached to them so that you can reborrow the amount of principle you have paid off on each mortgage payment as a LOC)
- Sell your non-registered assets (stocks held outside an RRSP)
- Use the proceeds as a down payment on your mortgage
- Make your mortgage payments
- As you make payments, re-borrow the principle through your LOC component
- Invest this re-borrowed money at a higher Rate of Return than the LOC interest
- Deduct your LOC (investment loan) interest and use the tax savings to prepay your mortgage
- Repeat steps 3-7 until you are mortgage Free!
That is a brief summation of how the Smith Maneuver works.
Recently Jonathon Chevreau of the Financial Post write this article on the Tax Deductible Mortgage Plan, which has become one of Canada's fastest growing companies.
A tax deductible mortgage is a great way to pay your mortgage off faster and as the article illustrates is becoming a tool that many Canadians are now using.
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