Rental cash damming
Let your rent pay down your home mortgage
Your rent goes onto your home mortgage, and your rental’s bills get paid with borrowing that may be tax-deductible. Your cash flow and total borrowing stay the same, while more and more of your debt works for you at tax time.
▶ Watch: rental cash damming explained (about 6 minutes)
Tax Savings Preview
About two minutes, and round numbers are fine. You’ll see a range, not a promise.
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Assumptions we used
The numbers you entered are your own. These are the assumptions we added, and your Blueprint sets each one to your situation.
Want your custom Blueprint?
You have your range; your Blueprint fine-tunes it. Start with a free strategy call. Once the $500 Blueprint fee is paid, we go through your financial details in more depth and build scenarios around your goals.
- Your overall projected net wealth improvement, including real estate appreciation
- Side-by-side scenarios: putting your tax savings on your mortgage, or investing them at a rate of return you choose
- Every assumption talked through with you and set to your situation
- Anything that needs review before you start, like a past refinance or your mortgage structure
For illustration only. The range uses the numbers you entered and the assumptions listed above. Results aren’t guaranteed and will change if rates, property values, income or tax rules change. This is not advice, an official Blueprint or an offer of credit.
Case study: a break-even rental
An illustration, not a real client. For the full walk-through, watch the video.
Where Sam starts
Sam owns her home, with a $400,000 mortgage at 4.45% and 25 years left. She also owns a rental that brings in $2,000 a month and costs about $2,000 a month to run, so it breaks even. Her taxable income is $145,000, which in Ontario means a marginal tax rate of about 43%.
Every month
The $2,000 of rent goes straight onto her home mortgage. Because her mortgage is readvanceable, that $2,000 opens up again on her line of credit, and she borrows it back to pay the rental’s bills. Under CRA rules, interest on money borrowed to earn rental income may be tax-deductible. The line of credit’s interest (5% in this example) is added to its balance, so her monthly cash flow doesn’t change and her regular mortgage payment carries on as usual.
Every spring
At tax time, the deductible interest turns into tax savings. Until her home mortgage is fully converted, Sam puts those savings on it as an extra prepayment and doesn’t borrow them back, so there’s less left to convert and it finishes sooner.
Once her home mortgage is converted
After about 9 years, her whole home mortgage has become tax-deductible investment borrowing: about $281,500. That’s less than the $400,000 she started with, because only the rent was borrowed back (about $222,000, plus about $59,500 of interest added along the way). Her regular payments (about $154,400 of principal) and her tax-savings prepayments (about $24,100) paid off the rest for good.
From there, Sam keeps making the same $2,200 monthly payment, now toward the investment loan, and adds each year’s tax savings. As the loan shrinks, so do its interest and the tax savings.
Where she ends up
Sam is completely debt-free in about 22 years, 3 years sooner than her original 25-year mortgage, without paying a dollar more than before. That’s 3 years of $2,200 payments she never has to make: about $79,200 that stays in her pocket. The tax savings along the way, about $66,700 in total, are what get her there sooner.
During the conversion
The conversion finishes about 3 months after year 9. Those last 3 months add $6,000 of rent borrowed back plus about $3,400 of interest, taking the investment loan from $272,086 to about $281,500.
| End of year | Home mortgage, regular payments only | Home mortgage, with rental cash damming | Tax-deductible borrowing | Tax savings that year |
|---|---|---|---|---|
| 1 | $391,058 | $366,327 | $24,558 | $240 |
| 3 | $371,949 | $292,695 | $77,507 | $1,348 |
| 5 | $351,081 | $209,846 | $136,012 | $2,572 |
| 7 | $328,293 | $116,676 | $200,657 | $3,925 |
| 9 | $303,408 | $11,951 | $272,086 | $5,420 |
| Fully converted (9 yrs, 3 mos) | $300,141 | $0 | $281,527 | — |
How it compares with paying extra each month
Not part of Sam’s story, but a question we hear a lot: what if you just paid more each month? Accelerated payments use your own money; rental cash damming doesn’t.
| Approach | Monthly payment | Debt-free in | Paid from your own pocket | Tax savings |
|---|---|---|---|---|
| Regular payments | $2,200 | 25 years | $661,500 | — |
| Rental cash damming | $2,200 | ~22 years | $579,000 | ~$66,700 |
| Accelerated payments | $2,700 | ~17.9 years | $578,700 | — |
| Rental cash damming + accelerated payments | $2,700 | ~16.6 years | $535,800 | ~$42,400 |
Accelerated payments mean an extra $500 a month from your own pocket; rental cash damming on its own uses no extra money. The “paid from your own pocket” difference is a bit more than $79,200 because Sam is debt-free just over 3 years sooner. In every row, the rent covers the rental’s expenses. Assumes rates stay the same and tax savings are applied once a year. Your results depend on your numbers, rates and tax situation; the Tax Savings Preview gives you a range for yours.
What to know before you start
Rental cash damming works well for the right people. Here’s what matters most.
- It’s a long-term strategy. The benefits build over years. It isn’t a quick win.
- Setting it up properly is everything. Borrowed money has to be used only for the rental and be easy to trace. Mixing personal and deductible spending can put your deductions at risk.
- Life will change. Interest rates, rent, expenses and your income will move over time, and that can make your results better or worse.
- Your borrowing grows. The line of credit balance goes up over time, and its rate is usually variable.
- Results aren’t guaranteed. The examples here are illustrations. Your Blueprint walks through these points for your situation.
How we work together
We start free, and you decide at every step whether to keep going.
- 1
See your range
Try the Tax Savings Preview above.
- 2
Free strategy call
We get to know your situation and see whether rental cash damming is a fit.
- 3
Your custom Blueprint
$500. Scenarios built on your real numbers, reviewed with you on a call.
- 4
Implementation
If you go ahead, your $500 is credited toward implementation.
Who this isn’t for
- Homeowners without enough equity for a readvanceable mortgage, usually at least 20%
- Anyone uncomfortable carrying a line of credit
- Anyone who doesn’t want to keep simple monthly records
- Anyone looking for a guaranteed result or a quick win
Pull up a chair
I’m Kendra Bartels, the strategy consultant behind Front Porch Consulting.
I named it Front Porch because that’s the kind of conversation I want to have with you: relaxed, honest and in plain language. I help homeowners and landlords understand and put in place mortgage strategies designed to pay off debt sooner, make borrowing more tax-efficient and build long-term wealth.
My background in the mortgage industry gives me practical insight into lender requirements and the details that make a strategy work smoothly once it’s in place.
I look at your circumstances, map out your strategy and coordinate with your mortgage professional, accountant and financial planner. Each of them advises within their own expertise, while I bring the whole strategy together around your goals.
Careful account setup, documentation and clear tracking of every borrowed dollar guide the process, with follow-up through tax time so the important details don’t get missed.
Questions
Is cash damming legal?
Yes. Under paragraph 20(1)(c) of the Income Tax Act, interest is generally deductible when borrowed money is used to earn income from a business or property, such as a rental. The CRA’s guidance in Income Tax Folio S3-F6-C1, Interest Deductibility looks at how the borrowed money is currently being used. That’s why every borrowed dollar needs to be traceable to an eligible use, and why proper setup and monthly tracking matter so much. Your accountant confirms how it applies to you.
Do I need a special mortgage?
Yes. Every strategy needs a readvanceable mortgage, and some need a specific product from a specific lender. Which one depends on your situation; there’s no one-size-fits-all. Front Porch Consulting doesn’t arrange mortgages. If yours needs restructuring, your Implementation Report includes instructions to take to your lender or mortgage professional.
Does it work if my rental loses money each month?
Yes. It works whether your rental is cash flow positive, negative or break-even. The amounts that move each month change, and your Blueprint shows what that looks like with your numbers.
When does the investment borrowing get paid off?
That’s up to you. Many landlords pay it off when they sell the rental. Others pay it down on their own timeline once all their debt is deductible. Higher-income earners often hold it longer, because the deductions are worth more in a higher tax bracket.
What does my accountant need to do?
Claim the deductible interest on your return, using the tracking and statements from your setup. With full support, we prepare a year-end package for your accountant.
Can I combine this with other strategies?
Often, yes. If another strategy fits your situation, we’ll walk you through it on your free strategy call. You can read about them below.
Other strategies
Every situation is different, and some of these can be stacked together. We’ll talk through which ones fit on your free strategy call.
Business cash damming
For self-employed people: your business income goes on your mortgage and your business expenses are paid with deductible borrowing.
StrategyDebt swap
Use non-registered investments to pay down your mortgage, then borrow to reinvest, so the interest may be deductible.
StrategyCash flow diversion
Keep investing the same amount each month, routed through your mortgage so your borrowing becomes deductible.
StrategyOffset mortgages
An all-in-one account where the money you keep in it lowers the balance you pay interest on, every day.
Ready for your exact numbers?
Pour a coffee, try the Tax Savings Preview, then let’s talk it through.
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