In the example above, I can invest at a higher rate
than I can save by paying down my mortgage early
with the money. Why? Because I am
borrowing at a lower rate and investing at a higher
rate which over time will net me a higher rate of
return.
Most people tend to hate having a huge debt like a mortgage hanging over their heads. However, there is a serious difference between a large mortgage debt and that of debt from cars or credit cards. Your mortgage is backed by your home and you can generally always sell that asset to pay off the mortgage debt at any time, and sometimes walk away with a profit as well. So, while it may be daunting to have this “huge” mortgage debt, it is actually a “good” debt versus the “bad debt” of something like a car or a credit card.
In the past, the movement has always been to pay off your mortgage as soon as you possibly can. The idea behind this being that you can then live “mortgage free” and save more of your money for savings and investments. However, this tactic generally comes out of the fear that people have from having a large debt owed, not on sound financial reasoning. Today, the suggestion from those who understand personal finances is to do the math and determine if paying off your mortgage really is in your best interest, or if investing the extra money will net you a higher rate of return over time.
The statistics say that 10% of the population of Canada control over 50% of the wealth. You might be surprised to learn that many of those 10% of people carry mortgages on their primary homes and secondary properties. They have worked debt into their financial plans because they can borrow on a property at a lower rate and invest their money at a higher rate. They often have investment portfolios which far surpass the total of their mortgage debt and know that they could pay off the debt at any time if they should choose to.
Here in Canada, our mortgage interest is not tax deductible as it is in the United States. However, CRA rule IT-533 says that you can deduct interest paid on debt which is used to invest in non-registered assets. So, what does this mean? It means that as you gain equity in your home, you can take out a mortgage on that equity and invest it. When you do, this the interest on that mortgage is tax deductible, and the money you “borrowed” against your home is earning you compounding interest as well!
As you can clearly see, using your home equity to invest can be a win-win proposition to help you gain serious amounts of wealth. By doing as the wealthy do with their finances, you can maximize your own wealth building and use the tax laws to your benefit in doing so. The idea isn’t to work harder, it is to have your money work harder for you and earn the maximum amount of interest possible.
Most people tend to hate having a huge debt like a mortgage hanging over their heads. However, there is a serious difference between a large mortgage debt and that of debt from cars or credit cards. Your mortgage is backed by your home and you can generally always sell that asset to pay off the mortgage debt at any time, and sometimes walk away with a profit as well. So, while it may be daunting to have this “huge” mortgage debt, it is actually a “good” debt versus the “bad debt” of something like a car or a credit card.
In the past, the movement has always been to pay off your mortgage as soon as you possibly can. The idea behind this being that you can then live “mortgage free” and save more of your money for savings and investments. However, this tactic generally comes out of the fear that people have from having a large debt owed, not on sound financial reasoning. Today, the suggestion from those who understand personal finances is to do the math and determine if paying off your mortgage really is in your best interest, or if investing the extra money will net you a higher rate of return over time.
The statistics say that 10% of the population of Canada control over 50% of the wealth. You might be surprised to learn that many of those 10% of people carry mortgages on their primary homes and secondary properties. They have worked debt into their financial plans because they can borrow on a property at a lower rate and invest their money at a higher rate. They often have investment portfolios which far surpass the total of their mortgage debt and know that they could pay off the debt at any time if they should choose to.
Here in Canada, our mortgage interest is not tax deductible as it is in the United States. However, CRA rule IT-533 says that you can deduct interest paid on debt which is used to invest in non-registered assets. So, what does this mean? It means that as you gain equity in your home, you can take out a mortgage on that equity and invest it. When you do, this the interest on that mortgage is tax deductible, and the money you “borrowed” against your home is earning you compounding interest as well!
As you can clearly see, using your home equity to invest can be a win-win proposition to help you gain serious amounts of wealth. By doing as the wealthy do with their finances, you can maximize your own wealth building and use the tax laws to your benefit in doing so. The idea isn’t to work harder, it is to have your money work harder for you and earn the maximum amount of interest possible.
History has shown, time and time again, that the financial markets and value of the Canadian dollar change and move in a very cyclical pattern. At one point you have high inflation where your dollars don’t go too far and interest rates are high, and at another point you have lower inflation with low interest rates and the value of a dollar is more. One of the secrets of successfully navigating the financial markets,
Making Your Mortgage Work for You and The Tax
Implications
and especially the real estate market, is to know
what the trends mean to you and how you can best
capitalize on them. For example, if mortgage
rates are at an all-time high and I have locked in
my mortgage term at the time when they were at an
all-time low, then I am beating the system and
essentially have a lower-than-the-going-rate
mortgage. This allows me the ability to
invest my savings into higher interest rate
investment vehicles and earn more money on my
investments, while maintaining a nice low interest
rate on my mortgage debt.