Homeowners in Canada do not get to enjoy the same mortgage interest deduction as their southern neighbors. However, Canadians do resort to the technique of the Smith Maneuver to convert a regular debt into a tax deductible one. It is a financial method that can restructure the biggest non-deductible debt of an individual to a deductible investment loan. Apart from this, one receives increased annual tax refunds, gets lower number of mortgage years and also enjoys an increase in net worth through methods that have been reviewed by the CRA or the Canada Revenue Agency. Newfoundland mortgage
brokers can provide you with all the necessary information in this regard.
The Smith Maneuver works in the following ways.
The borrower needs to find a re-advanceable mortgage first
This can be followed up by the sale of non-registered assets such as stocks that are held outside an RRSP.
The proceeds can then be used to pay the down payment on the mortgage
You can then pay the mortgage payments normally as one does.
Once the borrower starts paying off the principal, the amount can be re-borrowed into a LOC or a line of credit.
This re-borrowed amount can be then be invested for a higher rate of return that the amount paid as interest for the LOC.
Deduct the interest on the investment loan and then the tax savings could be used to pre-pay the mortgage till the time it is fully repaid.
There are many benefits associated with the Smith Maneuver, which can be explained by mortgage brokers in Newfoundland. First up, your net worth will go up significantly, given that you carry on with the same annualized return on the investments. The tax refunds will eventually get bigger and bigger as the interest applicable on the investment loan is now tax deductible. Smith Maneuver helps to pay off your mortgage faster and convert the same into a tax deductible format. However, there are some risks involved in the same as well just like any other investment plan. It does not lower your debt but simply converts it from a regular mortgage, which is not tax deductible in the country. It is necessary to get a readvanceable mortgage in order to use it as an investment loan. In order to get more information on the same and the risks involved, one can contact Newfoundland mortgage experts.