A tax-deductible mortgage?Article By: Ian MacNeill
There are two kinds of debt in this world, good debt and bad. Good debt, you say? Well, okay, fair enough. In an ideal world, we’d all be living debt-free. For that matter, in a perfect world we’d all be living debt-free and have a pile of assets expanding at an exponential rate, thanks to the miracle of compound interest.
Of course, for most of us, life’s not like that. Occasionally, we have to borrow money. We borrow it to buy our cars and pay for our vacations – and we borrow it to buy our homes. When we do, we pay for it dearly. Even at today’s bargain-basement mortgage rates, a $200,000 home costs more than $400,000 over the 25-year term of a mortgage. Toss in the fact that most middle-income earners are paying half of what they earn to the government in the form of taxes, and our struggling homebuyer is forced to earn in excess of $800,000 in order to pay off his or her $200,000 loan.
But what can you do? That’s the way the world works, so most of us knuckle down, make our payments and dream about the day we actually “own” our home. At the end of the process, we find ourselves house-rich, cash-poor and desperately behind in our retirement savings plans.
The Smith Manoeuvre
1) free up capital you can use to pay down your mortgage faster, and
In Canada, banks will typically lend you 75 per cent of the value of your home. If you own a home worth $100,000, the bank may lend you $75,000 to invest in something else. If you have a mortgage outstanding, it’s 75 per cent less whatever you owe. For example, if you still owe $75,000 on the mortgage, then you’re at break even. However, if you only owe $74,000, there’s $1,000 sitting in your home you could borrow to invest.
© December 2003 50Plus Magazine
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