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Using mortgage cash account as HISA (lemm.ee)

submitted 11 months ago by nebs@lemm.ee to c/personalfinancecanada@lemmy.ca

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Anybody have experience using BMO mortgage cash account? This is where you can pre-pay down the principle and then supposedly withdraw those funds when needed. I’ve been frustrated by the terms and conditions on my daily HISA so thinking this could be a way to get the equivalent of 5.15% (my current mortgage rate) for money that I don’t need to touch frequently. Seems like I can’t do better than this even in a HISA ETF.

My concerns are: am I thinking about this the right way? (Paying down principle on mortgage is equivalent to earning that percentage in a regular bank account?). Does this BMO mortgage feature really work like this? It wasn’t advertised to me, I had to dig into it.

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[–] zhenbo_endle@lemmy.ca 1 points 11 months ago

This sounds interesting. Please correct me if I'm wrong: If you deposit your extra money into this account, you can save 5.15% mortgage rate, which is reducing your interest cost.

If you deposit the money in an HISA, you earn 5.15% interest, and you need to pay income tax for the interest.

Assuming your income is 80k, your marginal income rate is 29% (https://turbotax.intuit.ca/tax-resources/ontario-income-tax-calculator.jsp tells me), so saving 5.15% interest means 7.25% pre-tax interest income.