Millionaire Mortgage

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.

  1. 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 http://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

  2. 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?

  3. 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?

  4. Hi Robert,
    As as an advisor who talks to Ed, had beers with and eaten with, I can tell you Ed would never use the equity build up to pay for the interest on the loan (the other plan sounds like like the funds are used from day one to pay for the interest on the loans…no build up time) Feel free to call him (Ed) but this plan as I see it has problems.
    As far as the seg funds trailer fees (I do not sell them) is about the same as a mutual fund… but who cares if it does not make sense.
    regards,
    Brian

  5. Brian,
    Perhaps I’m using the wrong terminology, but yes, as I understsand it, that’s what he’s doing.
    Please help me understand what I’m missing. From his milliondollarjourney.com post at:
    http://www.milliondollarjourney.com/smith-manoeuvre-strategy-the-rempel-maximum.htm
    “When you use the SM, you will get a small increase in your HELOC balance as you pay down your mortgage which is then used to invest. With the RM, instead of using the small increase to invest, you use the increase to fund your investment investment loan/HELOC. ”

  6. Hi Robert,
    In a nutshell here it is; lets say the principal goes down by $1,000, the HELOC is advanced by $1,000. A $100,000 loan costs $500 per month interest only to support. This is financed by the new monies from the new credit available from the HELOC plus any interest that is owed from the month before. What Ed is doing is using a bigger lump sum (to start with)instead of a smaller amount every month.
    The CRA specifically advises in section 20(1)(c) that if the interest on the loan is deductible, then, so is the interest on the interest. Compound interest on deductible loans (like mutual funds) is deductible.
    I hope this helps.
    Brian
    Ps. Only those who have good credit high incomes and can can handle the ups and downs of the market…and have reviewed their insurance (disability, CI insurance, etc.) should consider this…. all others should take a pass.

  7. Brian,
    I still think we said the same thing, in different words. You said it much more eloquently than I.
    Ed’s “Rempel Maximum” involves an investment loan where the cost of supporting the loan equals the principal portion of the mortgage – which I initially called the equity buildup.
    Agreed, it’s very leveraged and not for the faint of heart, but assuming a long investment horizon and a properly constructed portfolio, should provide exceptional returns.
    Regards,
    Rob

  8. This is to Brian or Robert Hof:
    Thank you for the interesting discussion. I was wondering two things.
    First. How is this Rempel Maximum more risky than the regular Smith Manoeuvre?
    Second. If I have a $200,000 mortgage at 5% I can redraw $354 in principle with my first payment. Does this mean that my initial Rempel Maximum investment loan would be about $90,000?$90,000 is the LOC amount that can be supported by $354 a month.
    Thanks.
    Joey

  9. Hi Joey,
    You have asked a excellent question. The “regular SM” known as the “plain Jane SM” is converting your mortgage a little bit at time over a number of years.
    Ed’s way is taking a lump sum say $100,000 as a starting point the HELOC supports the interest payments plus over time the mortgage is converted.
    The risk is the bigger amount borrowed. If the market goes up…good news, if it goes down …you may have to wait a while to get back to the amount you borrowed.
    regards,
    Brian

  10. Brian:
    Thank you very much for the reply. There are two things I’m kind of unsure of.
    Firstly, if one had a $300,000 house and a $200,000 mortgage, how big could the line of credit be? Could you provide an example?
    Secondly, does the Rempel Maximum increase the size of the tax deduction one would get each year compared to the regular Smith Manoeuvre?
    Thank you once again for your help.
    Joey

  11. Hi Joey,
    Good questions, the LOC would based on your income. Assuming a high income could support a LOC, this would be say another $40,000 at prime (the house would be security) any thing extra would be prime “plus” .25% or more)
    The tax refunds would be bigger. Make sure your life insurance/disability is factoring any extra debt. You should be at a high income before doing something like this.
    regards,
    Brian

  12. More alledged dirt on Reeve…
    “The fraud branch has received about 110 complaints and is looking into alleged investment losses of about $19 million, according to Sgt. Rob Zensner of the police fraud division. The investments are related to various businesses that were run by Reeve, including DPR Financial Inc., which was based in Cambridge, the Millionaire Group and Millionaire in You Wealth Institute in Waterloo, as well as the Jakobstettel Inn.”
    From: http://news.therecord.com/Business/article/575116

Your email address will not be published. Required fields are marked *

Copy link