Both families have $200,000 mortgage
that they are planning to pay down over
the next 18 years. In addition to having
the house paid for, they are able to
save $500 per month.
The Fosters save the $500 in
a non-registered investment. Assume
an 8% average annual return on the investment.
The Fosters, after 18 years, have a
house paid for and an investment portfolio
of $240,043.
The Harts on the other hand decide
to restructure the financial arrangements
by entering into a readvancable mortgage.
They make exactly the same mortgage
payment as do the Fosters. But the Harts
borrow back the principal pay down portion
of every mortgage payment. Also, the
Harts put the $500 monthly savings to
the mortgage and then borrow it back.
The monthly portion of the principal
pay down, plus the $500, are then borrowed
back and placed into an investment account
that, like the Fosters, also earns an
8% average annual return.
|
|
By borrowing back each monthly principal
payment and reinvesting these into an
investment account, the interest on
the investment account portion is now
a legal income tax deduction.
At the end of 18 years the Harts also
own their house outright, plus an investment
portfolio valued at $554,869. If the
Harts decide to pay off the $200,000
investment loan (the original mortgage
systematically converted to an investment
loan over the 18 years) they have a
net worth of $354,869.
| Compare
the Families |
Fosters |
Harts |
| Tax
Deductions |
$0 |
$142,381 |
| Mortgage
Paid |
18
yrs |
10.75
yrs |
| Family
Net Worth Improvement |
$0 |
$114,826 |
Now that's a smart mortgage!
|
