Home Mortgage Rates

Next Bank of Canada Meeting
June 5th, 2012

 

Special conditions apply

Mortgage Rates subject to change.

Special conditions apply
Mortgage Rates subject to change.

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The Smith Manoeuvre & TDMP

When dealing with debt, it is crucial to convert bad debt to good debt. Good debt is tax deductable where as bad debt is not. The Smith Manoeuvre converts your principle residence mortgage into a tax deductable debt.

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.