How to use your Line of Credit the Right Way
When used responsibly, home equity lines of credit can help facilitate investments, improve tax-efficiency and provide liquidity. But when credit lines are used for household appliances, vacations, new cars and dinners on the town, the advantages quickly disappear.
A report released by the credit agency Equifax shows that Canadian credit card debt has fallen, while line of credit debt has risen, and has been steadily rising for 4 years. It is suggested that Canadians are using lines of credit to pay off higher interest credit card debt. This article from the Financial Post explores using a secured or unsecured line of credit to your benefit.
There are several ways to use a line of credit to your benefit. One example is the Smith Manouevre. The Smith Manouevre is an investment strategy developed by Fraser Smith which allows the holder of a home equity line of credit to improve their investment portfolio and make their mortgage tax deductible. For every 100 dollars of principal that is paid back to the mortgage, 100 dollars worth of equity will become available to the client on the line of credit. Assuming the client uses the line of credit funds to invest, the interest on the line of credit becomes tax deductible.
This article explores other methods of using your line of credit to invest and produce tax benefits, making it an asset rather than a liability. Before applying any of these strategies for yourself, it is recommended to consult a qualified Mortgage Broker.
To read the full article from the Financial Post, click here.