How to Use Your Home Equity to Build Wealth—Tax Efficiently

A Smart Mortgage Strategy for Self‑Employed Canadians

When you're self-employed, you're always looking for smart ways to grow your money—and your home might be the secret weapon you’ve been overlooking. There's a powerful Canadian strategy that lets you use your home equity to invest, while also making the interest on that loan tax-deductible. It’s called the Smith Manoeuvre, and while it sounds technical, it’s actually pretty straightforward when broken down.

What’s the Strategy?

Here’s the big idea: Most of us pay our mortgage with after-tax dollars—and we get no tax break for it. But if you borrow against your home to invest in income-generating assets, the interest on that borrowed money can be tax-deductible. This turns your mortgage into a tool for building long-term wealth.

It works using a Home Equity Line of Credit (HELOC). Each time you make a mortgage payment and build more equity, you borrow that same amount back from your HELOC to invest. Over time, you convert your mortgage debt into investment debt—with tax benefits.

Why This Works Well for Self-Employed Professionals

If you're self-employed, you're already managing cash flow, taxes, and long-term planning. The Smith Manoeuvre aligns with that mindset:

• Tax Efficiency: You know the importance of deductions. Interest on HELOC funds used for investments is typically tax-deductible.
• Flexible Cash Flow: A HELOC offers repayment flexibility—useful during slower income months.
• Wealth Building: You're not just paying down debt; you're growing an investment portfolio alongside it.

Let’s Break It Down with a Simple Example

Let’s say your mortgage payment this month reduces your principal by $1,000. You now have $1,000 more in home equity.

Here’s what you do:

1. Borrow that $1,000 from your HELOC.
2. Invest it in something income-generating—like a diversified ETF.
3. The HELOC interest on that $1,000 is now potentially tax-deductible.
4. Rinse and repeat each month.

Over the years, your mortgage shrinks while your investments—and their potential returns—grow.

What You Need to Know Before Starting

This strategy isn’t for everyone, but if you’re financially disciplined and comfortable with basic investing, it can be a game-changer. Consider the following:

• You need strong equity: Most lenders want you to have at least 20% equity to access a HELOC.
• You should be comfortable with market ups and downs: Investments may fluctuate in value.
• You’ll need to keep things organized: The CRA will expect clean records proving the borrowed money went into eligible investments.
• Professional advice helps: Having a mortgage advisor and tax professional on your side makes this much smoother.

A Quick Recap of the Process

1. Check Your Equity - Make sure you qualify for a HELOC (20%+ home equity is the typical minimum).

2. Set Up a Readvanceable Mortgage - This allows your HELOC limit to grow automatically as you pay down your mortgage.

3. Start Investing Monthly - Reborrow the principal you’ve paid down and invest it.

4. Track Everything - Keep investment receipts and interest statements for your taxes.

5. Watch It Grow - Your mortgage shrinks, your investments grow, and your tax return might even improve.

Want to See If This Works for You?

If you're self-employed and looking to make smarter use of your mortgage and home equity, the Smith Manoeuvre could be a powerful fit. The key is knowing how to set it up properly and making sure it aligns with your risk comfort and goals.

Let’s Talk About Your Options

At Hoam Loans, we specialize in helping self-employed Canadians like you unlock the full potential of your home financing. If you're curious about using your equity to build wealth tax-efficiently, get in touch with us today—we’re happy to walk you through it, answer your questions, and tailor a solution that fits your lifestyle.

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