Personal Finance

HELOC

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  • May 21st, 2021 7:07 pm
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May 18th, 2021 7:37 pm
ronatola [OP]
Member
Nov 9, 2006
390 posts
66 upvotes

May 18th, 2021 7:37 pm

HELOC

I have a home equity line of credit and it is 80% used. I have had it for about 1 yr now.
It is with Simplii Financial
I just let it take out the min mthly int payment each month automatically
Is there any danger of the Bank seeing that only the min is being paid and cancelling the HELOC and calling in the debt?
Or are they just happy to see no downpayments on the principal and just getting the int every month.

There is no danger of my defaulting on it, as I have all the $ invested elsewhere earning passive income, and it more than covers the interest payment.
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May 18th, 2021 9:03 pm
ozzie16
Deal Addict
Oct 27, 2012
2712 posts
4344 upvotes
Toronto/San Francisc…

May 18th, 2021 9:03 pm

People max out their HELOCs without paying any principal, and even capitalizing the interest when doing the Smith Maneuver. I think you're good.
+5
May 20th, 2021 12:05 pm
yellowlight18
Sr. Member
Oct 12, 2014
836 posts
135 upvotes
Ajax

May 20th, 2021 12:05 pm

Thinking about doing this right now. Just opened a 300k secured LOC and want to buy an investment property that will earn passive income with little risk of defaulting.
May 20th, 2021 12:21 pm
ronatola [OP]
Member
Nov 9, 2006
390 posts
66 upvotes

May 20th, 2021 12:21 pm

@ozzie16
My Mortgage is paid off already and I have a $300k HELOC.
Can I deduct the interest payments as tax deductible using the Smith Maneuver?
Or do I need an existing mortgage for that to work?
+1
May 20th, 2021 5:07 pm
mastaj
Sr. Member
Dec 13, 2010
739 posts
1055 upvotes
Vancouver

May 20th, 2021 5:07 pm

ronatola wrote: ↑ @ozzie16
My Mortgage is paid off already and I have a $300k HELOC.
Can I deduct the interest payments as tax deductible using the Smith Maneuver?
Or do I need an existing mortgage for that to work?
Yes you can! Whenever you are using borrowed money to invest (in eligible products), you can deduct the interest on the loan. It doesn't matter how you have structured the borrowing - mortgage, HELOC, personal line of credit, investment loan etc. You just need to be able to track the usage of the borrowed money, in case CRA comes knocking when you file income taxes.
+1
May 20th, 2021 6:54 pm
ronatola [OP]
Member
Nov 9, 2006
390 posts
66 upvotes

May 20th, 2021 6:54 pm

Does Crypto-Currency investing count?
May 20th, 2021 9:59 pm
mastaj
Sr. Member
Dec 13, 2010
739 posts
1055 upvotes
Vancouver

May 20th, 2021 9:59 pm

ronatola wrote: ↑ Does Crypto-Currency investing count?
Most likely not - since crypto does not pay income or dividends, only capital gains. If something will only ever have capital gains, it is not eligible.

Some have argued that you can stake crypto and earn interest, which theoretically should make it eligible. But the interest is usually paid in crypto. I wouldn't want to risk arguing that with the CRA, and have them deny your whole tax deduction.
+1
May 21st, 2021 7:07 pm
aeromortgage
Jr. Member
User avatar
Aug 14, 2020
180 posts
168 upvotes

May 21st, 2021 7:07 pm

ronatola wrote: ↑ Does Crypto-Currency investing count?
I believe this is the difference between investing and speculation. In some ways of thinking, owning crypto isn't investing on it's own - no dividends or interest, only the speculation of appreciation, or a store of value. It's the same for raw land, or precious metals or art. There's nothing inherently wrong with speculation and it can be well done and make money. But real estate can generate rent, stocks can pay dividends, businesses can produce profits, loaned money can earn interest, etc. - the idea of deductible interest falls more into these types of investments, but ask your accountant or investment professional. I am neither.
.
+1

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