Debt Swapping Strategy
A strategy that focuses on restructuring debt efficiently over time while keeping the plan clear, compliant, and aligned with your long-term goals.
What it is
Debt swapping is a strategy designed to convert non-deductible mortgage debt into potentially tax-deductible investment debt over time.
Instead of using extra cash to invest while keeping your mortgage unchanged, debt swapping typically works by paying down your mortgage principal and re-borrowing (re-advancing) those paid-down amounts to invest, so the interest may become deductible because the borrowed money is used to earn investment income.
This is a mortgage + tax coordination strategy. It must be structured correctly, traced properly, and reviewed with your accountant.
Good fit if
You have a mortgage and consistent monthly surplus
Debt swapping works best when you can regularly pay down principal and maintain a steady routine.
You want to build investments while reducing non-deductible debt
The goal is to shift the type of interest you pay, not chase a lower rate.
You’re comfortable with investing and long-term thinking
Because this involves investing borrowed funds, risk tolerance matters and we stress-test the plan.
How it works
01
We map your mortgage, cash flow, and goals
We confirm what you can realistically commit each month and what you’re trying to achieve (tax efficiency, retirement, net worth growth, etc.).
02
We structure the mortgage so it can re-advance principal
Typically this requires a readvanceable setup (mortgage + credit line component) that matches lender rules.
03
You pay down mortgage principal, then re-borrow to invest (clean tracing)
As principal is paid down, you re-borrow those amounts and invest. Interest may become deductible if the borrowed funds are used for income-producing investments and documented properly.
04
We maintain a clean routine and review periodically
We keep the paper trail clean, adjust as rates/income/life changes, and ensure the strategy still fits.
Important note
Debt swapping involves investing borrowed money and may have tax implications. I’ll design the mortgage structure and strategy flow, but your accountant should confirm deductibility, tracing requirements, and suitability for your situation.
FAQ
Debt swapping is the broader concept of converting non-deductible mortgage debt into potentially tax-deductible investment debt over time. The Smith Manoeuvre is a well-known version of this strategy using a readvanceable mortgage structure.
The interest may become deductible when borrowed funds are used to invest in income-producing assets (and you maintain proper tracing). Deductibility depends on CRA rules and your specific situation, so your accountant should confirm.
Not necessarily. The purpose is usually tax efficiency and long-term wealth building, not rate savings.
It can be, because it involves investing borrowed funds. Risk depends on your investment approach, cash flow stability, rates, and discipline. We stress-test the plan before recommending it.
You need the willingness and suitability to invest as part of the plan. We can start small and scale over time if it fits.
Sometimes, but it’s not the default use case. If consumer debt is the main issue, we typically prioritize a consolidation and cash-flow stabilization plan first.
Example (Simple scenario)
You pay down $1,000 of mortgage principal this month. With the right structure, that $1,000 of available credit is re-advanced. You re-borrow that $1,000 and invest it in income-producing investments. Over time, more of your total debt shifts from non-deductible mortgage debt to potentially deductible investment debt, while your investment portfolio grows.
Key point: This only works when the borrowing is clearly tied to investing, and the tracking is clean.
