In Canada, four investment vehicles create wealth by accumulating tax-free income. These include investing in a home as a principal residence, a Registered Retirement Savings Plan (RRSP), a Tax-Free Savings Account, and accumulation in a Whole Life or Universal Life Insurance Policy.
The options for young professionals and entrepreneurs may seem endless when looking for ways to build wealth. Building a business, investing in a stock portfolio, or building up equity in a tax-deferred account are all great ways to build wealth. How can your mortgage broker fit in with your plan?
Here is how:
1) Invest in a Principal Residence
In Canada, a principal residence equity accumulates tax-free. If you meet the conditions and live in your home, the equity (the difference between what you sell it for and what you owe on your mortgage) accumulates tax-free. This allows families to build wealth over time by paying down their mortgage.
Your mortgage broker is uniquely positioned to assist you in structuring a plan for your future when you invest in most Canadians’ most significant personal investments of their lifetime. Your mortgage broker can tailor your mortgage to terms that will maximize your ability to increase your equity by making it easier to pay down the principal on the loan. Their unique perspective and experience can also provide a second opinion on the investment if it is suitable for you in the circumstances if it is likely to increase in value over time, and other common paths that buyers like you have taken in the past in maximizing the return on this important asset.
2) Invest in Mortgages Through a Tax-Free Savings Account or Registered Retirement Savings Account.
Most Canadians do not realize that a private mortgage is a qualified investment for a Tax-Free Savings Account or a Registered Retirement Savings Account. A mortgage broker experienced in private lending can help to advise, structure, and place an investment in a private mortgage that provides monthly income, is secured by real estate, and will accumulate tax-free inside either an RRSP or a TFSA. This is an excellent strategy for diversifying your investments, with an asset secured by real estate without the inherent cost and risks of ownership.
3) Life Insurance and Estate Planning and Real Estate Investments
Most experienced mortgage brokers are well-versed in life insurance products available, as their clients often make the most significant investment in their lifetime when purchasing a home, which, in most cases, requires at least two incomes to support the financing of the purchase. Life Insurance is an important estate planning tool to protect against a catastrophic event that can leave a family in peril, particularly in the early years. However, it can also be an effective tax and estate planning tool because of the unique characteristics of life insurance and how they are taxed during the policy’s life and in the event of a death benefit being paid out.
Most seasoned mortgage brokers work with experienced estate planners and life insurance experts who can tailor a plan to maximize wealth accumulation, particularly for clients operating small businesses or professional corporations.
Contact Alberta Mortgages, we would please to help you to explore any of these concepts in greater detail.