Growing up, I had great financial role models who shaped my mind to always plan for the future. They not only spoke it, but they lived it as well. I always had front row seats for when the unexpected happened and were good life lessons to observe. In many instances, these unexpected events were age, health, and house-related with my grandparents, who were in their 80s.
Then March 2020 happened. The pandemic laid the hammer down and my phone went crazy. I was busy fielding client concerns about mortgage deferrals and panic. The uncertainty due to the temporary economic shutdown and layoffs had many people wondering how they were going to survive financially.
People were in need of money. Many people tried to refinance their homes to access home equity while they still were employed. Lenders and the Government came up with relief programs, such as mortgage deferrals, CERB payments. And even the Bank of Canada bought billions of Canadian Mortgage Bonds to make the cost of borrowing more affordable.
But these were and still are short term solutions. I, and I'm sure many others, have asked themselves, what happens when the relief programs stop and we’re forced to start paying our mortgages again?
Finding a Long-Term Option
These short-term programs helped with the immediate need, but I wanted to find a long term solution. In particular, a long-term financial solution for when the unexpected happens again but people would be able to endure the stress of losing income temporarily without relying on the Government.
What I found was something all too fitting and powerful; the Smith Manoeuvre.
What is the Smith Manoeuvre?
While I’m fortunate enough to share the same last name as the founder of this strategy, I did not come up with it (although, it is pretty cool.)
The Smith Manoeuvre is a debt conversion strategy for Canadian homeowners. The financial strategy converts the non-deductible debt of your mortgage to the tax-deductible debt of an investment loan.
You can build your own non-registered ‘personal pension portfolio’ and earn substantial tax refunds year after year, using those refunds to pay off your non-deductible mortgage faster. The faster your investments grow, the faster your mortgage is paid off.
Totally makes sense right? Let’s break it down.
Psychologically, you’ve already made the commitment to pay your mortgage for the next 20-30 years, and the thought of missing a mortgage payment gives us all chills. The Smith Manoeuvre is an opportunity for you to re-borrow the amount you’ve already paid on your mortgage and invest it for long-term growth.
As Canadians, we already get taxed enough. By the time we collect our after-tax paycheque and pay all of our monthly expenses, we are often left with very little to go toward savings. Life’s not getting any cheaper and we like to overspend. I’ve been there. We’ve all been there. But this solution helps you get the most out of your mortgage financing, increases your tax deductions, therefore using your tax refunds to pre-pay the mortgage, and planning for your financial future.
So what’s the catch?
First, there is no catch. The strategy is straightforward, legal, and simple once the education process begins. What I will say is that you do have to meet a few criteria for the strategy to work that I talk about below. However, the people I’ve talked to about this strategy get so excited when I start to break down the process.
But, I think the most important question is, why isn’t everyone implementing the Smith Manoeuvre?
The first criteria you have to meet is that you have to have 20% equity paid into your home so you can set up the strategy properly. If you don’t yet have 20% equity in your home, you aren’t ready...yet. We also have to make sure your mortgage is set up properly for this strategy.
But a big reason I think more people aren’t using it is simply that people haven't heard of it. And often when they do, the strategy sounds too good to be true and it’s human nature to shy away from what we don’t understand.
Education is key and it’s ongoing. At the end of the day, we all want security, both in health and wealth. So if I have sparked your interest and curiosity, good! That’s the point. I want to help as many people as I can to get the most out of their mortgage and help them secure their financial futures.
I love talking about the Smith Manoeuvre and I want to talk about it with you! Let’s see if we can start your path to mortgage and financial freedom.