Smart Mortgage Moves for Business Owners & Taming Debt for Financial Freedom

**Neil Joseph**: *"Welcome to another episode of 'Getting Your Sh*t Together,' the podcast where we help you navigate the twists and turns of financial life with practical advice and real talk. I'm Neil Joseph – a Mortgage Agent and Real Estate investor, and alongside me is Jerome Christensen, a mortgage broker and life insurance expert who’s seen many things over the years. Today, we're talking about how our current approach to using credit might need a serious rethink."*

**Jerome Christensen**: *"That’s right, Neil. We're diving into a topic that’s more relevant now than ever. During the Covid era, many of us got into the habit of using credit cards for everyday purchases—racking up those reward points while we were at it. It made sense then; we were spending less overall, maybe even saving a bit. But now, with higher interest rates and inflation driving up the cost of everything, those same habits might be putting us in financial quicksand."*

**Neil Joseph**: *"Exactly. And here’s the thing—continuing to use credit the way we did when money was flowing a little easier could mean spending more than we’re actually earning today. It’s like borrowing from your future self, except future you might not have the cash to cover it. We want to help you avoid that trap."*

**Jerome Christensen**: *"Let’s break it down with a story about Johnny. Johnny got into the habit of using his credit card for everything back when he was saving money during the pandemic. It worked for him; he’d earn points and pay off the balance every month. But now, with prices up and his savings down, he’s still using that card the same way, but he’s not able to pay it off each month anymore. What Johnny doesn’t realize is that he’s digging a financial rut, and if he doesn’t change course soon, that rut could become a trench he can’t climb out of."*

**Neil Joseph**: *"That’s a powerful image, Jerome. Johnny’s story is more common than you’d think. The problem is, by the time many people realize they’re in over their heads, it’s too late—they’re forced to make drastic changes, often under the guidance of a Trustee in Bankruptcy. We’re here to help you avoid that last-resort scenario by recognizing the signs early and making adjustments before it’s too late."*

**Jerome Christensen**: *"Absolutely. The key is to change your relationship with debt now, rather than waiting until you’re forced to. Look at your spending habits, ask yourself if you’re living beyond your means, and start thinking about ways to live within them. This is about taking control before your financial situation controls you."*

**Neil Joseph**: *"So, what can you do today? I recommend Start by taking a close look at your credit card statements. Are you carrying a balance month to month? If so, it’s time to reassess how you’re using credit. And remember, you don’t have to figure this out alone. Professionals like Jerome and I are here to help you review your situation and find ways to get your finances back on track before they get out of control."*

**Jerome Christensen**: *"That’s right, Neil. The biggest takeaway from today’s episode is that small changes now can prevent big problems later. Don’t wait until you’re in that trench to ask for help. Reach out, get a second opinion, and let’s work together to make sure your financial future is as bright as it can be."*Empowering Self-Employed Borrowers – Maximizing Mortgage Opportunities While Minimizing Income Tax

Neil: Segment 1: The Traditional Mortgage Challenge: "So, Jerome.. Let’s have a discussion about business owners or self employed persons and how they can use B lenders to their advantage..

As you know, like a number of Canadians out there, I am a self-employed person. I run my mortgage business under a corporation for various reasons. One of the flexibilities that it offers me is that I can choose to pay myself based on my financial needs and I am not forced to pay myself a higher salary just because my business is doing good. This helps me keep my taxable income lower and thereby reduce my tax burden. But there is downside to this approach!

If someone is self-employed and run their business through a corporation, they would have experienced that securing a mortgage through traditional lenders can feel like navigating a maze. Prime lenders—think of the big banks—rely on personal income tax returns to assess income and determine the mortgage eligibility. They might look at your business financials but that would be to just confirm that the business can support the income!

Net result being… many self-employed professionals and business owners who pay themselves a lower wage or share of profits to maximize business growth and tax efficiency suddenly feel disadvantaged. What is truly a smart strategy for their business and personal finaces, works against them when trying to get a mortgage. And that can be the cause of dilemma. Should business owners really have to take a higher salary and or dividends than they actually need in order to qualify for a mortgage? And mind you, the bank wants to see a track record of this and so they will consider a minimum of 2 tax years of personal income". So, what should they do? Is there a way out?

Jerome: Segment 2: The Alternate Lender Advantage "Here’s where the game changes, though. Enter the alternate lender—a beacon of opportunity for self-employed professionals and business owners. Unlike prime lenders, alternate lenders often rely on your bank statements instead of your personal income tax returns to assess your financial situation. This approach allows you to maintain a lower taxable income, while still qualifying for a mortgage that aligns with your actual financial capabilities.

To put this into perspective, let’s consider a case study."

Segment 3: Case Study – John’s Journey "Let’s talk about John. John is a professional with over a decade of experience. He transitioned from full-time employment to becoming a business owner earning a solid income of $230,000 a year before corporate taxes. To optimize his business growth and tax efficiency, John pays himself a modest $90,000 annually which is sufficient for his needs.

“What if John wants to buy a property worth $1,000,000 and needs a mortgage of $800,000? With a prime lender, he’d need to show a personal income of at least $150,000 to $160,000 for the past two years in order to qualify. But with an alternate lender? His personal income from tax returns wouldn’t even be considered. He could continue to pay himself $90,000 or less and still qualify for the mortgage.

Is'nt that really cool?? So, Neil.. can you elaborate a bit more into the financial benefits of such an approach?

Neil:

Let’s first talk about the tax advantage. With a $90,000 income, John’s personal tax liability in Ontario might be around $18,500. But if he bumped his income to $150,000, his tax bill could soar to over $42,000. That’s an additional $24,000 in taxes every year! Is there anybody who likes paying more tax than required? So, clearly going with a B lender has its tax advantage.

It is also important to consider and be aware of the downside of choosing an alternate lender. as there are some costs involved. Firstly, a slightly higher interest rate… this premium can vary between 0.75% to 1.5% based on circumstances. And also, there is a 1% fee for the mortgage itself. But the good part is that these costs might still not be high enough to offset the advantage of the lower personal income tax. One would need to consult a mortgage broker or agent to see how this might affect them personally.

Going back to the example of John.. the slightly higher interest costs from an alternate lender could result in about $11,750 in higher interest and fees per year. However, this figure is still much lower than the $24,000 in additional income tax that he might have to pay each year if choosing a Prime Lender or Big Bank. That would be quite a bit of savings.

Jerome: So, should all Business Owners use a B lender in all circumstances? Are you able to provide a general recommendation?

Neil: that’s a great question.. Let me elaborate.

A review of specific personal circumstances is always required to answer this appropriately. However, generally speaking this is what I would recommend.

a. This strategy is best suited when a self-employed person is buying their owner-occupied property and or investment properties. I.e. use for all purchase transactions.

b. However, be selective when it comes to a subsequent renewal or refinance. If the idea is to keep the property for long and not frequently pull equity out or extend the amortization, I will recommend planning out an approach to move the mortgage to a Prime lender on maturity of the 1st term. But, if the idea is to frequently access equity for investment purposes, then retaining it at a B lender might be more appropriate.

In a nutshell, this requires some forward thinking and planning in order to achieve an optimal financial outcome! Hope this helps..

Jerome to Conclude: "In conclusion, if you’re self-employed or a business owner, don’t let traditional lending criteria hold you back. Alternate lenders offer a gateway to mortgage opportunities that align with your true financial situation. And with the right mortgage broker by your side, you can make smart decisions that support both your real estate goals and your financial health.

Question: Attention all self-employed professionals and business owners! Have you ever considered using a B lender or alternate lender for your mortgage? We’d love to hear your experience—whether you decided to go for it or opted not to. What influenced your decision?