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Writer's pictureNeil Joseph

Advanced Techniques: Supercharging Your Mortgage Pay Down

Updated: Oct 9


Advanced Smith Manoeuvre Techniques

The Mortgage Loan Conversion strategy is already a powerful financial strategy that allows Canadian homeowners to convert their non-deductible mortgage debt into tax-deductible investment debt. But did you know there are advanced techniques associated with this strategy that can further accelerate your mortgage pay down and grow your investment portfolio? These methods, while effective, carry a certain level of risk, particularly due to the use of leverage for investments. Quality of investments and careful management are key to long-term success.

 

In this blog, we will provide an overview of five advanced techniques: Swap Your Debt, Divert Your Savings, Reroute Your Cash Flow, DRIP, and Jumpstart. Let’s explore how each works and how they can supercharge your financial journey. 

 

Disclaimer:

The strategies and techniques discussed in this blog are intended as an overview for educational purposes only and should not be considered as financial or investment advice. The Loan Conversion Strategy and its advanced techniques involve leveraging debt, which carries significant risk. Before proceeding with any of these strategies, it is crucial to consult with a qualified financial advisor, mortgage broker, or tax professional to assess whether these strategies align with your financial situation, goals, and risk tolerance. Proceed with caution, and ensure you fully understand the potential risks and benefits before implementing any financial strategies.

 

1. Swap Your Debt

This is one of the simplest but highly effective advanced technique. This involves selling existing assets held in a non-registered account, using the proceeds to pay down your mortgage, and then re-borrowing from your Home Equity Line of Credit (HELOC) to repurchase the same or other income-generating investments.

 

How it works:

- Sell assets (like stocks or bonds) from a non-registered account.

- Use the sale proceeds to pay down your non-deductible mortgage.

- Re-borrow the equivalent amount from your HELOC and reinvest in similar or better-performing assets.

 

Key considerations:

- This is typically a one-time transaction and won't significantly change the risk profile of your investments beyond the use of leverage.

- Your investment remains the same or similar; you are simply turning non-deductible debt into deductible debt, creating tax advantages.

 

2. Divert Your Savings

This technique allows you to do more with the same monthly cash flow. Instead of directly investing your savings, you use your available cash flow to pay down your mortgage and then immediately reborrow the same amount through your HELOC to invest.

 

How it works:

- Direct your monthly savings or surplus cash flow to make additional payments on your mortgage.

- As the principal on the mortgage decreases, the HELOC limit increases, allowing you to re-borrow and invest the same amount.

 

Why it’s effective:

- This strategy maximizes the efficiency of your cash flow by first reducing non-deductible mortgage debt and then re-borrowing to invest, increasing the speed of both mortgage pay down and investment growth.


3. Re-Route your Cashflow

For individuals with sole-proprietor businesses or investment properties, this technique can significantly speed up mortgage paydown. In this strategy, income from your business or rental property is used to pay down your mortgage first, while expenses for the business or property are paid using funds reborrowed from your HELOC.

 

How it works:

- Use the gross income from your business or rental property to make extra payments on your mortgage.

- Re-borrow funds from your HELOC to cover your business or rental expenses.

 

The result:

- You rapidly reduce your non-deductible mortgage balance while still managing business or property expenses. This technique can drastically accelerate the Loan Conversion process, especially for those with substantial business or rental income.

 

4. DRIP (Dividend Reinvestment Plan)

The DRIP technique involves using any dividends or returns from your investments to pay down your mortgage, rather than reinvesting those dividends through a Dividend Reinvestment Plan (DRIP).

 

How it works:

- Instead of automatically reinvesting dividends in the same stocks, use these payouts to reduce your mortgage principal.

- As your mortgage principal decreases, your HELOC limit increases, allowing you to re-borrow for further investments.

 

Considerations:

While you lose the potential discount on reinvested shares through a DRIP program, this technique can reduce your mortgage faster, freeing up more equity for future investment.

 

5. Jumpstart

You jumpstart the investment component of the Loan Conversion Strategy by accessing equity available through your HELOC right away. This allows you to begin investing immediately, rather than waiting for mortgage payments to gradually increase your available equity.

 

How it works:

- Draw on the available limit of your HELOC right from the start and invest in income-generating assets.

- This advanced technique allows you to boost the growth of your investments early in the process, while still enjoying the benefits of tax-deductible interest payments.

 

Key Risks to Consider

While these advanced techniques can dramatically accelerate your mortgage paydown and increase your wealth, they are not without risks. The primary risk is the use of leverage—essentially borrowing to invest. If the investments you make with borrowed funds lose value, you are still responsible for repaying the HELOC. Additionally, rising interest rates can increase your borrowing costs, potentially making it more difficult to cover these with investment returns.

 

For these reasons, it’s essential to ensure that the investments you choose are high-quality, income-generating assets. Working with a financial advisor, mortgage broker, and tax expert is critical to implementing these strategies successfully and ensuring they align with your financial goals and risk tolerance.

 

Are these Advanced Techniques for Mortgage Pay Down Right for You?

The Loan Conversion Strategy, particularly when combined with advanced techniques like Swap Your Debt, Divert Your Savings, Reroute your Cash Flow, DRIP, and Jumpstart, can be a highly effective way to pay down your mortgage while simultaneously growing your investment portfolio. However, it requires careful planning and a strong understanding of the risks involved.

 

If you’re interested in exploring how these techniques can work for your unique financial situation, reach out to us for a personalized consultation. We can help you assess whether the Loan Conversion Strategy and its advanced strategies align with your financial goals and risk profile.

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