What Is the Debt Swap Strategy?
By using existing investments to pay down the mortgage, then borrowing that amount back to reinvest, homeowners can reduce their tax burden and save significantly on interest over the life of the loan.
Why It Works
Under Canadian tax law, interest paid on loans used for income-generating investments is tax-deductible.
The Debt Swap strategy leverages this rule, allowing homeowners to restructure their debt in a way that optimizes both their mortgage and investment portfolio.
Financial Highlights
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Significant interest savings
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Accelerated mortgage repayment
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Enhanced long-term wealth building
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No impact on personal cash flow
Key Benefits of the Debt Swap Strategy
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Tax Deductions on Investment Loans: When you borrow to invest in eligible income-generating assets, the interest on that loan becomes tax-deductible. This allows you to reduce your taxable income and receive annual tax refunds.
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No Impact on Personal Cash Flow: After implementing the Debt Swap strategy, your total monthly mortgage payment remains the same as it was before the swap. You continue paying your mortgage as usual, but with the added benefit of tax deductions and interest savings.
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Accelerated Mortgage Paydown: By applying your annual tax refunds to the non-deductible portion of your mortgage, you can pay down your mortgage faster. This strategy can shorten the amortization period, saving you thousands of dollars in future payments.
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Long-Term Wealth Building: The interest savings and future payment savings you achieve can be reinvested in income-generating assets, creating a compounding effect that grows your wealth over time.
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