November 30, 2020

This is an excerpt from my new MasterClass:  The 6 Secrets:  What Every Business Owner Must ALWAYS and NEVER Do With Their Corporate Cash Flow.  Check it out at


NEVER use corporate dollars to quickly pay down your home mortgage.


Why?  Because it costs you MORE, not less!


I meet with a lot of business owners who tell me they are rapidly paying down the mortgage on their home.  But if you are indeed an incorporated business owner, this does not make sense, at all, from a financial planning perspective.


Let me explain.


There is good debt and there is bad debt.


Nobody is going to knock on your door and say “I want to buy your car loan.”


Nobody is going to knock on your door and say, “I want to buy your student debt.”


Nobody is going to knock on your door and say, “I want to buy your credit card debt.”


BUT…someone WILL knock on your door and say “I want to buy your house.”


So:  car loans, student debt, and credit cards are bad debt, while a mortgage on your house is good debt.


Let me ask you:  the house you are currently living in – are you going to stay there for the rest of your life?


Most people say “no.”  If you are most people, then you have to look at your house as an asset on your balance sheet.


OK.  I might be dating myself here.  But I am going to turn myself into Lieutenant Columbo from the 1970s TV show.  Remember him?  The police detective who pretended to be confused but really wasn’t?


Well, I am totally confused.  Why are you rapidly paying down your mortgage on your house?


Let’s assume you have a mortgage rate on your home of 5%.  Yes, I know your mortgage rate is probably less than 5%, but if you have a lower mortgage rate than 5%, this example will only look better.


Let’s also assume you are in a 30% personal tax bracket.  That means for every extra dollar you are taking out of the corporation to pay down your mortgage, you get to keep 70 cents and you are sending 30 cents to Ottawa that you will never see again.


So here is the math:  why are you taking that extra dollar out of the corporation and paying 30 cents in personal taxes to pay down a debt – your mortgage on your house – that is only costing you 5 cents on the dollar (i.e. a 5% mortgage rate)?  For every extra dollar you are taking out of the corporation to “rapidly” pay down your mortgage, you are losing 25 cents, being 30 cents minus 5 cents.


Why are you doing this?


Also, isn’t your house typically going up in value each year?  Perhaps 3%, 4%, or 5%?


So back to Lieutenant Columbo.  One of his other acts was to say “Just one more thing…”


So just one more thing:  why are you rapidly paying down the mortgage on your home, your debt, when your home is going up in value?


I am so confused.


We could instead leave that dollar inside the corporation and pay the small business corporate tax rate of 11% or 12%.  Then you would have 88 or 89 cents on every dollar to invest into a tax-sheltered strategy inside your corporation.


Also, if you have student debt or a line of credit, and you are only paying the minimum amount of interest each month, then you’re better off moving that “bad debt” into your mortgage.  Do you see what you’ve done here?  You’ve turned it into “good debt”!


This way, you include the payments in your normal monthly mortgage payment, which will save you a ton of interest costs on the personal side.


Over 80% of Canadians who have paid off their mortgages have what?  They have a secured line of credit against their house that the bank talked them into taking out.  People usually max out that line of credit.   So the average Canadian gets into the trap of paying only the interest costs – not the principal – on a monthly basis.


Banks love this.  But you are better off having a mortgage vs. a line of credit.  Why?


Imagine we take a $100,000 mortgage and a $100,000 line of credit.  They both have a borrowing cost of 3%.  We make the same payments on both of them.  But at the end of the year we will still have more owing on the line of credit!  Why?


Because with a line of credit, the interest rate is compounded daily, whereas the interest rate on a mortgage is only compounded twice per year.


The conclusions are obvious:  

1.NEVER rapidly pay down the mortgage on your home using corporate dollars!


2.If you have any “bad debt”, like a line of credit or a car loan, restructure your mortgage to include the bad debt and turn it into good debt!


Business owners:  want to see a live illustration of this secret and the 5 other big secrets?  And get some great bonuses?  Just watch my new MasterClass.  Here’s the link:

John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
1 416 840 8544