The goal is to pay off your mortgage faster while enjoying tax deductions and instead of being just mortgage free, finishing your mortgage with a large investment fund for retirement.

In order to access the Smith Manoeuvre, you must have access to a readvanceable mortgage. There are a number of lenders who offer these mortgages but by aware, some are Smith Manoeuvre friendly whereas others make it very difficult to use this strategy. Please consult us or with your favourite mortgage broker who is knowledgeable of the Smith Manoeuvre for a list of lenders.

However, instead of trying to conduct the Smith Manoeuvre on your own, I highly suggest taking a look at TDMP (Tax Deductable Mortgage Plan). For a small monthly fee, TDMP essentially manages everything for you and monitors your progress.

TDMP partners you up with a mortgage broker (me) and a financial advisor. You will be given a breakdown of the potential from the strategy. This does not work for everyone but if we feel you are a good fit, we will proceed. Following this we set up a readvanceable mortgage and sell your non-RRSP assets (stocks, non-registered mutual funds, etc). We use the proceeds to pay down your mortgage. You can readvance the proceeds from a LOC (line of credit) portion of the readvanceable mortgage and repurchase those investments. This has now turned the interest from that portion of the mortgage into a tax deduction.

The next step is to pay your mortgage as you typically would. With each principle payment you readvance that amount into the LOC and invest this money into a higher yielding investment than the interest you would be paying on the LOC. The interest portion of the LOC is a tax deduction that will award you an annual tax return. Use this to pay down your mortgage further and readvance the funds again.

Rinse and repeat until your mortgage is paid off. What is the difference? Your mortgage should theoretically be paid off twice as fast and you should have a very healthy investment portfolio to play with.

This concept is certainly a brilliant idea but of course like most investment strategies, has risks. Always consult an experienced financial advisor and accountant familiar with the Smith Manoeuvre prior to proceeding.

Gross Debt Service Ratio (GDS): The percentage of the borrower’s income that is needed to make all payments for costs associated with housing. There is a maximum amount associated with this ratio to ensure that borrowers can afford to carry the debt.

Total Debt Service Ratio (TDS): The percentage of gross monthly income required to cover the monthly housing payments and other debts, such as car payments. Essentially debt payments. The max TDS is generally 40-42% for a conventional mortgage and up to 44% for a high ratio mortgage when a client has excellent credit.

• 2.05% Current VRM rate at Prime (2.25%) minus 0.20%
• 3.89% Current frozen payment

Using a $300,000 mortgage and 25 year amortization, the following happens:

• Current VRM payment is $1,277.60 and it floating at Prime minus 0.20%
• Current frozen payment is $1,560.22

With a frozen payment, the difference in payment is taken off your principle balance. In this calculation, the amount $282.62 is coming off your principle every month. When the Prime rate increases (and it will eventually), that spread decreases. When the interest rate exceeds your frozen payment you are protected but are now paying less of the principle per month. Paying less per month obviously isn’t a good thing but this option is here for your protection. When the interest rate increases to this point, I suggest putting aside month to dump in the principle annually or requesting a monthly payment increase. Of course you would only do this if your budget permits such action. In the event interest rates skyrocket, you will receive a warning call from your lender that your payment will have to increase otherwise your amortization will automatically increase.