What The Hecks A Smith Manoeuvre?


The Smith Manoeuvre is a technique that converts regular debt into tax-deductible debt. In the process, it presents an opportunity to pay off your mortgage significantly faster.

The basic workings of the Smith Manoeuvre can be summed up to the following: First find a readvanceable mortgage like the RBC Homeline Home Equity Loan. You would then sell your non-registered investments and assets (non registered means investments/assets outside of your RRSP). Use the proceeds as a down payment on your mortgage. Make your mortgage payments as usual but as you pay off the principal owing you would re-borrow it within the line of credit that forms part of the home equity loan or readvancable mortgage. Take this money borrowed and invest it at a higher rate of return than the interest your paying on the line of credit. You can then deduct the interest you're paying and use the tax savings to pre pay your mortgage. Keep repeating these steps until your mortgage is fully paid off.

This strategy can reduce the time it takes to pay off your mortgage by 50% It can also help you get more money invested sooner. This strategy, however, is not for everyone as there are risks associated with it; both investment and tax risks. Your returns could fluctuate on your investments or turn out to be lower than expected.

My advice would be to always talk to a financial planner or tax advisor jointly with your mortgage planner before doing something like this.

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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