For most home buyers, a mortgage is the only path to ownership. But a recent survey reveals that mortgages are also being used as a preferred investment strategy for wealthy Canadians.
The survey commissioned by Investors Group found that 67% of high-net-worth Canadians — those with investable assets of $500,000 or more — who have a mortgage could actually pay off their home in full if they so chose.
A full one-fifth of wealthy Canadians have mortgages, with an average size of $156,890.
“There was a time when extinguishing one’s debt was of paramount importance. This was particularly the case in the past where interest rates were higher and, for many, servicing debt precluded them from investing in future goals, whether that be retirement, education or the like,” says Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group.
“Today that is not necessarily the case. Individuals may wish to retain current investments rather than triggering capital gains taxes.” That means paying down the mortgage often isn’t the best plan.
Other tax-efficient uses of mortgage debt include investing in income-producing assets such as real estate, as well as businesses or investments in the common term of the word — effectively any asset that may yield a cash return, he said.
“The low interest-rate environment requires only a modest return to service the debt incurred to acquire these assets, while the normal returns available to a prudent investor would be the icing on the cake,” Veselinovich added. “Mortgages provide access to lower-cost funds than many other lending facilities because they are seen by the lender as being fully secured, and have a built-in cushion (equity portion) in the event that the value changes over time.
Other interesting facts from the survey:
- 32% of high-net-worth Canadians own additionalcommercial or residential properties
- 42% have investment rental properties
- More than one-quarter of wealthy Canadians (with mortgages) do not have plans to become mortgage-free before retirement
Steve Huebl, CMT (email)