A bonus can make part of your mortgage deductible
If you get a work bonus or have some cash sitting in savings, there is a way to make one lump of money do two jobs at once.
I went down a rabbit hole on this recently and it changed how I think about a windfall. Most of us treat a bonus as a simple either-or. Either you throw it at the mortgage, or you invest it. Turns out you can do both with the same dollars, if your mortgage is set up the right way.
The setup you need is called a readvanceable mortgage. That just means a mortgage with a line of credit attached to it, and the line of credit grows every time you pay down the mortgage. A few Canadian banks offer this. Now say you owe $600000 on your home and a $15000 bonus lands.
Step one, you pay the $15000 straight onto the mortgage. The balance drops to $585000. Step two, because your line of credit grew by that same $15000, you borrow it back out. Step three, you invest that $15000 in something that earns income.
Look at what happened. You still owe $600000 in total. You did not add any debt. But $15000 of it is now money you borrowed to invest, and interest on money borrowed to invest is tax deductible in Canada. You converted a slice of plain mortgage debt into deductible debt, and you got the $15000 invested on top.
The numbers are small at first and that is the honest part. At around 4.95% on the borrowed $15000, that is roughly $740 of interest in year one, and at a 43% tax rate about $320 comes back as a refund. The bigger win is that this repeats and the deductible slice grows over years.
This is not free money and it is not for everyone. The $15000 is now invested, so the market can drop while you still owe the balance. You need stable income and a long time horizon. And the paper trail matters a lot: the borrowed money has to stay traceable to the investment, so keep it out of your everyday chequing. One more trap if you fund this by selling investments at a loss: do not buy the same thing back within 30 days or you lose the loss for tax. Talk to your accountant before you set any of this up.
