Millionaire Mortgage

Canadians are forever looking for ways to pay down their mortgage faster. That’s a big reason the Smith Manoeuvre has generated such interest. Yet when it comes to using tax deductions to reduce your amortization, there hasn’t been much competition to the Smith Manouevre.

That may be changing.  DPR Financial, a wealth advisory firm based in Cambridge, Ontario, has reportedly been having success with a new product it calls the Millionaire Mortgage. The Millionaire Mortgage is designed to create a portfolio of investments and generate tax refunds that can be used to pay down a mortgage faster.

In a nutshell, it works by using your home equity to finance a large unsecured line of credit (ULOC) which is separate from your mortgage. The ULOC is then invested in a portfolio of actively managed “segregated funds” (an investment similar to a mutual fund but with an approximate 25% maximum downside). The interest paid to support the investment loans is tax deductible and generates an annual tax refund that is used to pay down the mortgage.

Like the Smith Manoeuvre, the idea is to build a large and growing portfolio of investments and accelerate the pay-down of your mortgage.

As with any investment, there are both potential rewards and risks. Because of the Millionaire Mortgage’s intricacy (and because we’re not financial advisors) any questions about the products inner workings should be posed to DPR Financial directly. Their contact information is available on their website.

Please note: This is an informational post only and not a recommendation of any kind. Please do your own research and consult independent tax and financial advisors before acting on any financial information you read online.

Comments

[Brian Poncelet, CFP]

Hi MT,

When I read this "millionaire mortgage" I must say its sounds like the seg funds (mutual funds with guarantees with much higher fees) have finally came out with funds that are known as ROC (return of capital).

Tax problems! Now that I have your attention. Please go to CRA's web site www.cra-arc.gc.ca/E/pub/tp/it533-e.pdf. The key is sections 12 & 13 of the IT bulletin (section 20(1)(c)(i) of the income tax act. The note is "current use" of the money. It is up to the investor to prove to CRA that "current use" of the borrowed money is that it is still invested. Since one is getting money distributed to them good luck! Unless this loan is prorated down by the amount of distributions, expect a bill when your first tax audit comes!

What I believe is happening here is the fund distributes some capital gain or ROC. If it is capital gains or income then this "fund" will go down in value in a big way during poor times in the market.

Example, lets say the loan is $50,000 it costs about $200 per month interest only. So the "funds" generated $4,800 for the year, the person writes off $4,800 in interest payments if the "funds" distribute capial gains or dividends you pay taxes on that distribution! If it does not distribute any capital gains for the first number of years then this must be ROC (return of capital)

Box 42 amounts represent the portion of distributions you received each year that is a return of capital. It reduces your cost of the investment. You should be able to keep track of monthly/annual distributions that you receive (and perhaps reinvested if that's the option you chose when you bought the units) using a spreadsheet and reduce the cumulative cost for the ROC portion when you receive your T3 slip. If you sold a portion of your mutual fund or closed end fund units part way through the year, you may have to pro-rate your calculations.

Hope this helps!

regards,

Brian Poncelet, CFP

[Alps Hikin]

I must admit that post flew right over my head. Perhaps the high mountain air is making me dizzy but why would a well established company promote investments that present tax problems for customers?

[Robert Hof]

To me this sounds like an imitation of Ed Rempel's "Rempel Maximum" (RM). In the RM Smith Manoeuvre, there is an investment loan, but the loan interest payments are made from the equity buildup in a readvanceable mortgage - no additional monthly cash contribution. This may also be the case with DPR - it isn't mentioned in the article - but snazzy marketing name aside, proper credit should be given.

Do seg funds offer a higher trailer fee to the sales person ^D^D^D^D advisor?