Investors. 10% 15% 20% & 25% Down Payment For Homes, Townhome, Duplex, Fourplex
#1 goal - have the renter pay off your mortgage!
My suggestion - pay the mortgage off fast, set up the rental property to make your home mortgage tax deductible and apply your tax rebate to the principal.
Is it worth paying a penalty to get out of the wrong mortgage? Probably! Only one reason to pay a mortgage penalty - to save money.
Don't Throw Your Money Away On . . . Interest (Non-Deductible Kind)
The most important quality of any mortgage strategy is how much payment is applied to interest and how much is applied to principal.
It is obvious that mortgage A, same rate as B and the same payment as C, will pay your mortgage off the fastest, with the least interest, and the most principal. Accomplished without increasing payments above a fixed 5 year rate. If lowest payment is your goal B is for you.
Mortgage A will take several years off the amortization where as mortgage B will take the full 25 years.
With mortgage A many lenders allow you to miss a payment giving you credit for the over payments you have made. Mortgage A and B are available as of ( Dec 15/2002).
Next: Make your home mortgage tax deductible with the help of a rental property?
I am not sure why less then 20% get it or maybe they get it but don't implement it. Use the laws of mathematics to prove it to your self, call Revenue Canada, have your accountant punch the numbers or I can do it for you using your mortgage examples. It works.
Take a close look - take it one
step at a time - get comfortable
with the idea - then take action.
You own a $300,000 home with an existing mortgage of $150,000. You own a rental with a mortgage that pays you $900 a month rent. Each month you receive the $900 rent - pay it on your home mortgage. The $900 will go to reduce the principal increase your equity and decrease your mortgage payout.
But now how are you going to pay your rental mortgage? Well . . . lets take out a floating 2nd mortgage against your home so you can dip into it when you need money. Which will be every month. By the way the floating 2nd is tax deductible because the money is borrowed for the purpose of paying your rental mortgage not your home mortgage.
I can hear the wheels turning . . . why would you want to use a higher interest rate, probably higher but not always, 2nd to pay your rental mortgage. One reason . . . it is better, all most always, to have a higher deductible mortgage then a lower non-deductible mortgage.
Over time you will have paid off your home 1st mortgage and be left with a floating 2nd that can now be rewritten as a lower first mortgage and still be tax deductible.
Why an investor should not do this - YOU HAVE SO MUCH MONEY YOU DON'T CARE. I would argue if you have so much money do it anyway and make a charity very very happy . . . oh and you will get a tax receipt.
Here is one way you can make a non-tax-deductible purchase with tax-deductible money - from a mortgage related point of view. I am not an accountant so you should run this idea by your accountant before trying it.
You always wanted to take up a hobby like chariot racing, or hot air ballooning, but you would settle for a boat if it was tax deductible. You make a good living but you have business expenses, a family and a mortgage to consider. Try this . . .
Put your monthly income in a safe place like a savings account, GIC, or term deposit. Pay your personal expenses with it but not business related expenses such as office, advertising, dues, employees, lights, heat and professional fees etc.
This is the part I really like. Give me a call for a ride in your chariot and to set up a floating line of credit or 2nd mortgage on your home to pay your monthly business expenses.
Paying your business expenses in this manner will still make them tax deductible right? Of course it does. So what about the money you are depositing that is piling up in the GIC. When that money becomes enough to purchase your team of wild horses, hot air balloon, or boat take it out and pay cash for it. You just made your non-tax-deductible purchase with tax deductible money.
You also have a new asset that you can use as collateral. | |
