109 responses

  1. Ed Rempel
    December 10, 2014

    Hi Nabeel,

    The answer to your question is: probably. You are referring to the “aggressive approach” in which you co-mingle funds, but keep a precise record of each. In general, if you records are accurate, it should be fine. However, what will you do if there are deviations, such as changes in interest rates, lump sum payments, or some other variation.

    It sounds like your real issue is dealing with the wrong financial institution. Every institution I have seen has identical rates for conventional and readvanceable mortgages. If you have someone trying to persuade you to go with a conventional mortgage, it may be a mortgage broker, since they have limited access to readvanceable mortgages.

    We have a free mortgage referral service on our web site, if you want a referral to today’s lowest rate and a readvanceable mortgage.

    Ed

  2. nabeel
    December 10, 2014

    Ed,

    I did fill up the mortgage referral form on your website and will explore whatever options are presented, but one of my main concerns with the AIO type of products is that the entire line (mortgage + LoC components) is shown on my credit report as a secured LoC. So, in my example, my $210K mortgage plus $36K LoC, both part of my AIO, are reported as a $246K balance on my Equifax and Transunion reports.

    I used to be a heavy CC churner, and my instant approvals are few and far between in the last 3 years of holding this NBC AIO product.

    Are there are AIO type products that do not report the mortgage component as a regular credit line?

  3. Mark In Kingston
    December 16, 2014

    Wow this can be a huge long run tax savings. So if I keep borrowing for the expenses after my principal residence mortgage is done, (but using it and the rental property as collateral for these Heloc debts) investing in resp/tfsa and rsp (making those debts tax deductible) is there a limit in how high I can go? Market value of the house or as much as I can borrow.

    If it matters, principal residence is worth 300 000 and my rental is worth 250 000

  4. Mark In Kingston
    December 16, 2014

    Because in theory the bank will lend me 80% percent of each (440000 based on today’s values) but does it really make sense to deduct interest from 440000 in debt on a 250000 property?

  5. Nak
    March 5, 2015

    Good question Mark,

    Can someone answer his question?

    Can we have 440k$ deductible debt on a 250k$ property? Because I am doing the cash damming with my rental. The total debt against the rental is almost 90%. What is the limit that I can go?

    Thanks.

  6. ottawaGUy2
    March 13, 2015

    Ed, could you please answer the above question?

  7. Ed Rempel
    March 15, 2015

    Hi Mark, Nak & Ottawa,

    There is no specific limit to how much debt you can make tax deductible with the Cash Dam strategy. It can be more than the value of the rental property. In fact, in general the Cash Dam works better with non-incorporated businesses than with rental properties. We have had cases where the tax deductible debt is several times the gross sales of a business.

    When you get creative, it you can do some amazing things. For example, you can borrow to contribute to your RRSP and get a nice refund, then use the Cash Dam to convert the debt to tax deductible. Essentially any debt can be converted to tax deductible, if you do it right.

    There are 2 main limitations:

    1. Unreasonable interest deductions. Your rental or business could be considered a hobby by CRA, if you start showing losses year after year. If your interest becomes so high that you show losses with no clear prospect of becoming profits, then CRA might deny all the losses. A property or business that does not eventually produce taxable income is generally not considered to be real.

    Also, if the interest deduction is unreasonably high, you could be essentially asking for an audit.

    2. You still owe the money and pay the interest. The Cash Dam can convert a debt to tax deductible, but you still owe it. You have to look at your overall financial situation and tolerance for debt. If it does not make sense to have debt, then making it tax deductible still may not make it smart or appropriate.

    Ed

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