Tax Strategies

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How to Make Your Mortgage Interest
Tax Deductible

Conservative leveraging for the conservative investor
(If the phrase "conservative leveraging" sounds like a contradiction in terms, please read on. There is a way for conservative investors to participate in leveraging without running any undue risks.)   

Many who would qulify for an investment loan are probably already using the concept of leveraging, but in a much less effective manner. Anyone who has taken out a mortgage has already borrowed to purchase an equity investment - an investment that has zero diversification, poor liquidity, and a non-deductible iinterest expense. Borrowing to purchase an investment expected to grow, with better dirersification and liquidity, and where interest expense is tax deductible, can be done with potentiallly less risk than one would have thouht initially.

Consider a family that has both a mortgage as well as non-registered investments. Below is an example to illustrate the point.

Balance Sheet Before Leveraging		Balance Sheet With Leveraging
Assets House RRSP Non-registered investments Total Liabilities Mortgage Total Total Net Worth	$200,000 $100,000 $100,000 $400,000 $100,000 $100,000 $300,000	Assets House RRSP Non-registered investments Total Liabilities Mortgage Investment Loan Total Total Net Worth	$200,000 $100,000 $100,000 $400,000 $_50,000 $_50,000 $100,000 $300,000

(This is a simplified example for the purposes of illustrating leveraging using a 100% Investment Loan.)

An investor can sell his or her non-registered investments and use the funds to pay off some or all of the mortgage. Then through a leveraging investment program, the investor can reacquire non-registered investments using borrowed funds. The loan can be set up to pay "interest only". This helps to keep the monthly cost down.

In effect, you have made the interest on your mortgage payments tax deductible. With CONSERVATIVE LEVERAGING, you have created an annual saving of $1200.

Annual Savings: Borrowed Funds X Interest Rate X Marginal Tax Rate

$50,000 X 6% X 40% = $1200

Please Note: This illustration is intended to provide a simple explanation of Conservative Leveraging and is for general purposes only. Leveraging is not suited for everyone. Please contact Hans Mathisen for details about this opportunity.

Why not use Other People's Money?

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