And pay off more of your mortgage at the same time!
Do you have the wrong kind of debt?
“What’s the wrong kind of debt?” you ask. It’s debt that’s not tax deductible! Unfortunately, that’s the kind that most of us have. Even the wealthy have debt, but the difference is they routinely turn their loans into good debt by making the interest tax deductible. They do this with the help of an array of expensive accountants and lawyers.
So while the wealthy are transforming their house mortgage loans into free tax refunds, what are the rest of us doing? We’re paying off huge amounts of mortgage interest with after-tax income and not getting any wealthier in the process.
I’m guessing that you’re thinking, “That stinks, but what can I possibly do about it? After all, it’s just the way it is, the rich just keep getting richer!” Don’t despair—there is hope. There does exist a simple, yet powerful method that extends those tax-saving benefits to the rest of us. In fact, it’s so easy to use that you and your financial planner can start turning your bad debt into good debt almost instantly!
Are you investing enough?
I’m sorry I asked! I know that you’re probably like most Canadians, who simply aren’t! After never-ending taxes and the cost of just trying to make ends meet, most of us don’t have the leftover cash today to put away at least 10% of our income, or even come close to maxing out our RRSPs every year.
The benefits of compound interest are immense. It’s essential to our long-term financial well-being, yet it remains out of reach for most. Once again, there is a way to change that. It’s done by converting mortgage interest into tax refunds. I don’t know about you, but for me, that sounds like hitting the jackpot in Vegas every time that I play! It dramatically improves your cash flow; in turn, that cash flow can be further used to build more wealth. It’s an incredibly amazing way for you and your family to receive large amounts of new money, through free tax refunds. Isn’t it about time that you got something back from the tax department?
Let’s take a real life example of what this looks like:
Frank’s existing mortgage has a balance of $300,000 at a rate of 2.99% over a 25-year amortization. Payments are $1,418 per month. Frank hasn’t put any money into his RRSP for years, so the cumulative room available is $35,000. We’ll take a typical marginal tax rate of 30% (simply put, 30 cents of every dollar earned goes to taxes).
If Frank were to refinance his existing mortgage to $335,000 and stay with a 25-year amortization, using a fixed 5 year rate of 2.69% his payments would be $1,532 – so payments increase by $114 per month.
However, using that same 30% tax rate, a $35,000 contribution into Frank’s RRSP would result in an income tax refund of approximately $10,500!
Now Frank would have a few options. He could put that $10,500 directly against his mortgage or some outstanding debt; he could save it for next year’s RRSP contribution; he could use it for some renovations; or he could invest it.
Now I know some of you are saying, “Kam, he just increased his payments by $114 per month.” That’s true, and if Frank were simply to stick that refund under a mattress, at the end of 25 years he would essentially pay an additional $34,200 ($114 X 12 months X 25 years) in mortgage interest. However, if that’s all he did, he would still have $35,000 in his RRSP and, even if the value of that investment didn’t increase, plus the $10,500 under his mattress, that’s $45,500—still $11,300 more in his pocket than what he would otherwise have!
Isn’t it about time that you started paying less to CRA, and more towards your mortgage? If you’re ready to save money and become mortgage-free sooner, then it’s time to give our team a call and start down the road to prosperity!
Auxilium means to care, aid, assist, and support.
We look forward to helping you with your mortgage needs.
or call 250-590-6520 (Toll-free 1-855-590-6520) to speak with a mortgage planner. We’re open 8:30 a.m. – 5:00 p.m. PT, from Monday to Friday.