Smith manoeuvre

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There are a few ways I know. Probably the simplest is for people who have both a mortgage and a portfolio of liquid investments. First, liquidate your investment assets. Then use the cash to pay off your home loan. Now negotiate a new mortgage for the same amount, but this time I’d take out a long-term fixed-rate home loan with a higher rate. Two reasons for this – rates have only one direction in which to travel, plus you get to deduct more interest from your taxable income.

Use the proceeds of your new mortgage to repurchase the same assets you owned before in your investment portfolio. And, voilà, now you have a totally tax-deductible mortgage. You also have maintained your investment account, which means you’ve diversified your net worth, instead of concentrating it in one thing. Risk off.

If your new mortgage is 4% on a $300,000 borrowing you’ll be able to deduct $55,838 over the next five years from your taxable income. This amounts to more than half of all the mortgage payments combined. Meanwhile your investment portfolio can continue to grow, and at a 7% annual rate it will have increased about 50% within those same five years.