The TSX is down about -12% year to date my guess is the TDMP clients may not be pleased at what is happened to their holdings.

The fees and poor returns may mean getting this idea to zero will be hard to do, even after the mortgage is paid off. The investment loan will take many years to pay off.

If their is any TDMP clients out there please share your story.

Cheers,

Brian

Since it is tax time agian …here is some more problems with some “tax deductible Mortgage plans” TDMP.

T5′s and T3′s produced by the funds bought! This reduces the effective tax refunds big time!

I have a person who has been doing this for about four years (underwater by about $30,000 net tax benefit …about $400 refund for 2010! I reviewed her tax return! We are working on steps to reduce her risk avoiding or lowering her T3′s and T5′s.

The tax returns should be no more than $200. The key is the mutual funds (which distribute a return of capital)… are they prorated down every year? If not an audit by CRA could be painful.

Since most CA firms know little about how these funds work, I will keep you posted to see if in fact the taxes are done properly.

An update, person with a TDMP (see comments above) he is about $63,000+ under water even after the market gains in 2009.

Problems:

Distributions cut. (2008) mortgage paydown now much slower!!
Little follow-up now from advisor…markets down
Broker pushing to lock in rates, the longer the better!

Good news:

Finally stop paying the $40 per month.

Bad News:

Wife not happy with financial situation.

in my opinion, the investment should not be used to pay off the mortgage… especially if you are taking money from the capital invested. You will affect your tax deductions along with seriously handicap your investment for long term returns…. this sounds just stupid!

I had a person see me who had a TDMP mortgage who lives in the Burlington, Ontario area. He had borrowed about $170,000 in 2007 (June/July) the value in December 2008 was $97,000 (aprox.)

The distribution was $1,133 per month (paid from the fund to help pay down the mortgage faster)…now the distribution was cut to $650 per month! Remember the cost to support the $170,000 was almost $600 per month (based on prime). This means he has about $50 per month to pay down the mortgage!

After the $40 fee the “EXTRA PAYMENT” of $50 is down to $10.
If this market does not recover soon and make a BIG recovery, he will be underwater. More distribtuion cuts will happen unless this market recovers.

The Five key questions to ask:
Will distribtuions be cut?
How does a monthly fee effect the plan?
What if I lose my job?
What if the market does not recover anytime soon?
Can I do something more conservative and protect my family?

The TDMP plan may work for some people, just get all the facts first and ask lots of questions.

Just because a plan looks good a paper, does not mean it will work out in real life.

Everyone has an agenda but you have to ask yourself what makes the most sense. So far the CFP route including insurance/investments and the Manu/National bank make the most sense to me.

The TDMP so far seems easy b/c people don’t have to manually adjust their accounts every month! Maybe the $40 mth might be worth it as opposed to the trouble of manually doing it?

I spoke with some their VP of marketing today to get some info because this does seem annoying to my clients that I am suggesting this to. I did not get the info but was told there may be a seminar in my city in a couple months or so.

You are right the advisors can choose any fund they wish. Here is the problem with the ROC (return of capital funds) right now, as you know the market is down about 40% come January these funds will have the distributions cut! After this distribution cut comes another problem, since these funds are distributing about 8% the performance is hurt even more.

On a $100,000 loan assuming the fund is only down 30% this cut will be about $200 per month. So the original distribution was about $666 to $466. Even though the market value is now $70,000 you still have to support this loan for $100,000 with prime (bank at about 4.25%) this will cost about $354 per month this leaves you with about $100 to invest!

If this market does not recover soon and fast I see more cuts to the distribtions going forward.

I think TDMP charges $40 for this service every month. Which seems high in in this market. Even without the fees you have to be careful.

My suggestions is to make sure clients have some risk management (insurance) before entering any leverage. If you go to any bank and borrow for your business they will usually get you to buy, or have insurance signed over to them before you get the money. This is to protect the bank! Why not protect yourself instead! This is usually a topic that is not raised at all even though by leveraging you are taking on more risk.

Brian

I think people here should not consider TDMP. To date they have 3000 clients. The advisors under the program are only restricted to selling their funds, so right there it is not a independent solution for canadians.

Canadians should consider the Manulife One product or a similiar product like National bank’s all in one. It applies the same rules of SM but SANS THE FEES !!!!. WHO SAYS YOU HAVE TO LEVERAGE ALL OF THE EQUITY IN YOUR HOME. Ratio should be a 1 to 10 or 1 to 5 basis. ANYTHING MORE IS TROUBLE.

Bear and Bull markets over the last 40 years have been 1 year bear ( down ) and 4 bull years up. Things will rebound, stay calm and focus on what you can control.

People should also consider using a HELOC to get a IRP insurance retirement program. Where the gains ( 8 % ) even NOW IN 2008. since its a capped fund inside the insurance policy.. ITS TAX FREE AND TAX SHELTERED…..

Anyone has any comments i want to know. TELL ME. Cheers,

DON’T GET MAD GET EVEN, Jim Cramer