Tax Deductible Mortgage Freedom Program?

[guessboi]

So I went to a seminar few months back about this program offered by CRS (canadian residential solutions) and Sparta Wealth Management Solutions Inc.

In brief summary, their program is designed to help people obtain a low interest loan (only if you have at least 25% equity in your house)...and with a combination of financial products using this loan to provide tax reducing benefits, and a steady stream of income to help pay down the mortgage faster and more...
- elimate tax earlier than planned
- create tax deductions though the loan
- ability to consolidate debt
- accumulate large investment over time
- generate tax advataged income
- guaranteed protected investment

Any feedback about this program? Does it really work over time? I think the benefit is not that great considered if the investment return is less than the borrowing rate...so I have rejected them to set up an appointment with me twice already.

[QuasarCav]

Just reading your paragraph this sounds like WFG / Primerica.

[Canmorite]

Was the loan a HELOC? This isn't new. The money borrowed is used to invest, and those gains are tax deductible. The interest earned on the investment is used to pay the mortgage...

No?

[lint]

Sounds like their trying to sell their investments via the Smith Maneuver. You don't need them, pretty much any FP can help you out with this
http://www.redflagdeals.com/forums/s...d.php?t=150279
http://smithman.net/home.html

[guessboi]

^ that's the one. thanks! I will read about it. i am a big redflagdeals fan btw.

[max_boost]

OK so in short, Smith Move is:

- You need min. 20% equity in your home.
- Take out an investment loan e.g, $200K loan.
- Each monthly payment goes towards purchasing more stock/fund.
- Interest paid on loan is tax deductible. This will give you a larger tax refund end of the year.
- Stock/fund will pay dividends
- End of the year, take your dividends and tax return and use it to pay down your principal balance of your mortgage.

25 years later, you still have your $200K investment loan but you would have most likely paid off a huge chunk of your mortgage and have a portfolio significantly greater than $200K.

So basically, you need a bulletproof portfolio?

You still pay taxes on all your investment income/dividend payouts right?

[davidI]

Originally posted by max_boost
OK so in short, Smith Move is:

- You need min. 20% equity in your home.
- Take out an investment loan e.g, $200K loan.
- Each monthly payment goes towards purchasing more stock/fund.
- Interest paid on loan is tax deductible. This will give you a larger tax refund end of the year.
- Stock/fund will pay dividends
- End of the year, take your dividends and tax return and use it to pay down your principal balance of your mortgage.

25 years later, you still have your $200K investment loan but you would have most likely paid off a huge chunk of your mortgage and have a portfolio significantly greater than $200K.

So basically, you need a bulletproof portfolio?

You still pay taxes on all your investment income/dividend payouts right?

From what I understand, that's the gist of it. As you pay down your principal balance, your HELOC should increase meaning you can use more "good debt" to invest. Your debt basically stays even throughout except at the end, rather than owing say $200k on your house, you owe $200k on a loan you invested. Hopefully, that $200k investment has appreciated so when you pay it off, you're in the black. The key is to invest in securities offering dividends, and deducting your loan interest payments from your taxes. You then take your tax deductions and dividends and pay down your mortgage, increasing your HELOC and allowing you to borrow more money with a tax deductible interest rate. The part I'm still trying to wrap my head around is what ROI you need to break even. The interest rate on the HELOC will be higher than that on your mortgage, but you also need to take into account what marginal tax rate you'll be in and how much deducting the interest will save you....

The thing is, you're still paying interest on your mortgage, plus interest on your LOC (which is tax deductible) as your try to pay down your mortgage to shift the interest from your mortgage to your HELOC.

If you already have money in stocks / mutual funds etc., you're already playing with some risk. A sensible first step from what I've gathered, would be to sell your stock, pay down your principal, get a form of HELOC, withdraw that principal you just paid, deduct the interest from your HELOC on your tax return and re-invest the money into those same investments or into your mortgage principal as above. You're facing the same risk as before but you can deduct the "bad debt" on your mortage by turning it into tax-deductible interest for "good debt".

I'm still doing some more reading on this and will likely try to build some form of calculator in excel to play with the numbers. I'll post more once I have a better grasp on the details but it's definitely an interesting concept. Also, a simple HELOC is not necessarily the best way to do this. I need to crunch some more numbers before I can figure out what variables make this worthwhile and how risky it really is.