Rental cash damming
Let your rent pay down your home mortgage
Your rent goes onto your home mortgage, and your rental’s expenses are paid with borrowing that may be tax-deductible. Your cash flow and total borrowing stay the same; more of your debt works for you at tax time.
▶ Watch: rental cash damming explained (about 6 minutes)
Tax Savings Preview
Two minutes, 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 to them, and your Blueprint adjusts each one to your situation.
Your Blueprint adds real estate appreciation and your estimated net wealth improvement, including how it changes if you invest your tax savings instead of putting them on your mortgage.
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You have your range. Your Blueprint dials it in. Book a free discovery call to get started; once the $500 fee is paid, we review your financial details in more depth and build scenarios around your circumstances and 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 discussed with you and set to your situation, not a general range
- 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 neutral cash flow rental
An illustrative example, not a real client. For more context, watch the full video.
The starting point
Claire is a local landlord with a $400,000 home mortgage at 4.45% and 25 years left to pay it off. Her regular payment on that home mortgage is about $2,200 a month, paid from her own income. She also owns a rental that brings in $2,000 a month, with about $2,000 a month in expenses, so the rental has neutral cash flow. Her taxable income is $145,000, which in Ontario puts her at a marginal tax rate of about 43%.
What happens each month
The $2,000 of rent goes straight onto her home mortgage. Because the mortgage is readvanceable, that same $2,000 becomes available on her line of credit, and she borrows it back to pay the rental’s expenses. 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 paid each month with a separate advance from the line of credit, so her cash flow doesn’t change and her regular mortgage payments carry on as normal.
What happens each year
At tax time, the deductible interest on the line of credit produces tax savings. Until her home mortgage is fully converted, Claire uses those savings to make extra prepayments on it. They aren’t borrowed back, so there’s less left to convert and the conversion finishes sooner.
If the rental starts earning more
This example keeps the rent and the rental’s expenses equal the whole way through. In reality, rent tends to rise over time while the rental’s own borrowing costs come down. Any surplus also goes onto Claire’s home mortgage, and because it isn’t borrowed back, it shortens both the conversion and her path to being debt-free.
Once the home mortgage is fully converted
After about 9 years, all of her home mortgage has been replaced by line of credit borrowing whose interest may be deductible: about $280,300. That’s less than the original $400,000 because only the rent was borrowed back (about $220,800, plus about $59,500 of interest borrowed along the way). Her regular payments (about $154,900 of principal) and tax-savings prepayments (about $24,300) paid off the rest for good.
From here, Claire keeps making the same $2,200 monthly payment, now toward the investment loan, and adds each year’s tax savings. As the loan shrinks, its interest and the tax savings shrink too.
The result
Claire 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 no longer has to make: about $79,200 that stays in her pocket. The tax savings she receives along the way, about $66,800 in total, are what get her there sooner.
See the numbers
During the conversion
The conversion finishes about 3 months after year 9. Those last 3 months add about $8,200 of borrowing (rent borrowed back plus interest), which takes the line of credit from $272,086 to about $280,300.
| End of year | Home mortgage, regular payments only | Home mortgage, with rental cash damming | Line of credit (qualifying borrowing) | Tax savings that year |
|---|---|---|---|---|
| 1 | $391,024 | $366,291 | $24,558 | $242 |
| 3 | $371,842 | $292,565 | $77,507 | $1,361 |
| 5 | $350,894 | $209,590 | $136,012 | $2,597 |
| 7 | $328,019 | $116,257 | $200,657 | $3,963 |
| 9 | $303,040 | $11,326 | $272,086 | $5,472 |
| Fully converted (9 yrs, 3 mos) | $299,760 | $0 | $280,323 | — |
How it compares with accelerated payments
Not part of Claire’s story, but a common question: what if you just paid extra 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 | $660,800 | — |
| Rental cash damming | $2,200 | ~22 years | $577,100 | ~$66,800 |
| Accelerated payments | $2,700 | ~17.8 years | $578,400 | — |
| Rental cash damming + accelerated payments | $2,700 | ~16.5 years | $535,200 | ~$42,600 |
Accelerated payments mean an extra $500 a month from your own pocket; rental cash damming on its own uses no extra money. The table’s “paid from your own pocket” difference is slightly more than $79,200 because Claire 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.
Is it right for you?
Rental cash damming works well for the right people. Here’s what to know before you start.
Structure and execution are what make it hold up with CRA
Interest is only deductible when the borrowed money can be traced directly to the rental. That depends on how your mortgage and accounts are set up from day one, and on how every transaction is handled after that. It’s the part that’s easiest to get wrong, and it’s what our implementation support is built for.
- It’s a long-term strategy. The benefits build over years. It isn’t a get-rich-quick scheme.
- You’ll need at least 20% equity in your home and a readvanceable mortgage. Regular lending qualifications apply if a new mortgage is needed.
- It takes ongoing discipline. Borrowed money is used only for the rental, never for personal spending, and monthly records keep every dollar traceable.
- You’ll carry a growing line of credit. Its balance increases over time and its rate is usually variable, so you should be comfortable with that.
- Your circumstances will change. Interest rates, rent, expenses and your income will move over time, and that can make your results better or worse.
- Results aren’t guaranteed. The examples here are illustrations. Your Blueprint is built on your own circumstances.
How we work together
We start free, and you decide at each step whether to keep going.
- 1
See your range
Try the Tax Savings Preview above.
- 2
Free discovery call
We learn your situation and confirm whether rental cash damming fits.
- 3
Your custom Blueprint
$500. Scenarios built on your numbers, reviewed with you on a call.
- 4
Implementation
If you go ahead, your $500 is credited toward implementation.
Who we are
We’re Amy Morley and Todd Broomhead, the strategy consultants behind Highmark Mortgage Strategies.
We help clients understand and implement advanced mortgage strategies designed to accelerate mortgage payoff, improve tax efficiency and build long-term wealth. Our knowledge draws on ongoing training, collaboration with industry experts across Canada and firsthand experience using these strategies ourselves.
Amy has worked in the mortgage industry since 2020. Her experience as a mortgage broker brings practical insight into lender requirements and the details that support successful implementation. Todd has trained with industry experts since 2025 and uses some of the strategies we teach himself.
We assess your circumstances, develop a roadmap and coordinate implementation with your mortgage broker, accountant and financial planner. Each advises within their expertise, while we bring the complete strategy into practice around your circumstances and goals.
Our support includes practical tools and trackers, guidance throughout the first year, and a year-end package for your accountant. Careful account setup, documentation and traceability of funds guide the process, with follow-up through tax preparation to help ensure important details are accounted for.
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 the current use of the borrowed money. That's why every borrowed dollar must be traceable to an eligible use, and why proper set-up and monthly tracking matter so much. Your accountant confirms how it applies to you.
Do I need a special mortgage?
Yes. Every strategy requires a readvanceable mortgage, and some need a specific product from a specific lender. Which one depends on your personal circumstances; there's no one-size-fits-all. Highmark doesn't arrange mortgages. If yours needs restructuring, your Implementation Report includes instructions to take to your lender or mortgage professional.
What does my accountant need to do?
Claim the deductible interest on your return, using the tracking and statements from your set-up. 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 discovery call.
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