Smith Manoeuvre Maintenance
I've spoke about the benefit of pulling a smith manoeuvre in a previous newsletter but to briefly discuss again this is when you have your mortgage financing set up with an available line of credit. Each time you make a payment to the mortgage portion it will add available limit to the line of credit portion. You then take those available funds and invest them in a non registered investment. The interest paid on those borrowed funds for the investment then becomes tax deductable. You can then take any money you get back in a tax refund to do a lump sum mortgage payment. History has shown that this can result in paying off your mortgage as much as 50% sooner and you'll have a investment portfolio by the end of it.
The maintenance comes on a monthly basis. Every month shortly after your mortgage payment take the available money from your line of credit transfer it into your checking account and then take that money in your account and invest it. You'll have to do the investing manually if you have a self directed investment and are making the investment decisions yourself. Or to make it easier you could set up an automatic transfer from your line of credit to your checking and one from your account to your investment portfolio you might have set up with a financial planner. This way there is less to do and everything just happens automatically.
Please remember, though, that this sort of investment plan isn't for everyone and I would always recommend speaking with a mortgage advisor like myself as well as a tax advisor or a financial planner to discuss the risk/reward payoff.
Tony Marchigiano | Mortgage Specialist - Mortgage Sales BC Region, RBC Royal Bank | Royal Bank of Canada | T. 604-505-7109 | F. 778-737-0054
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