Canadian Money Forum banner

Smith Manoeuvre

2K views 6 replies 4 participants last post by  Fisherman30 
#1 ·
Well, you're all probably going to think I'm the world's most indecisive person. First we were going to sell our house and buy a nicer, bigger house. Then we were going to use a HELOC to finish our basement. Now, we're thinking of doing the Smith Manouevre. I have reviewed all of the other Smith Manouevre threads, but wanted my own thread to cover my specific situation. Here are our details:

Bought our house in 2015 for $265 000. Currently owe $208 000. Bank currently values the house at $340 000. Willing to convert our mortgage to a readvanceable (TD Flexline) mortgage with a HELOC rate of Prime + 0.45%. It sounds like we should be able to get it down to Prime + 0.25%. We would have $63 000 available immediately, with that amount increasing by whatever amount we pay off on our principal going forward.

My plan is to sell our rental property in June, take that money, and pay off all of our debt (car loan, personal LOC, and student LOC....a total of about $20 000). Once that is taken care of, I will start investing about $1500 every 2 weeks into VBAL, ZWC, and ZDV. I don't want to invest the whole $63 000 all at once, so by investing a little bit every couple of weeks, it will allow me to maintain a cash reserve in the HELOC in the even there is a market correction, and I can deploy money and invest at lower prices. I will take the dividends from my investment and put it on the mortgage principal. With that mortgage principal freeing up more room on the HELOC, I will take that extra money on the HELOC and invest, and repeat the cycle every month as I receive my dividends. Once the mortgage is paid off, I'll sell the investments to pay off the HELOC, and then, if all goes well, I should also have some money left behind in my investment account. I will also claim the interest on the HELOC as an investment expense.

As for finishing the basement, my work matches 15% of my gross income into my choice of a TFSA or RRSP, which I can transfer out twice a year (including the company's match). This works out to over $30 000/year. I will continue maxing out my contributions to that plan, put half towards retirement savings, and half towards a fund to finish the basement, or use as a down-payment for a new house. Also, by paying off all of my debt once the condo is sold, that will free up about $750/month in cash flow that I can use however I wish.
 
See less See more
#4 ·
Just be aware that BMO loves 'Return of Capital' to boost yield... they are just giving you back your money and hoping that the underlying assets appreciate to cover the RoC. Plus in a cash acct it can be a PITA to do the ROC tracking - which yes, YOU have to do - they do not.

WOW, a 100% return in 1 year !!! & next year its worthless. All they did was give you back your own money each month. Its a numbers game.
 
#6 ·
I don't want to invest the whole $63 000 all at once, so by investing a little bit every couple of weeks, it will allow me to maintain a cash reserve in the HELOC in the even there is a market correction, and I can deploy money and invest at lower prices.
Isn't this the time right now that you're describing? Seems to me the perfect time to push cash in, in the long view.
 
#7 ·
Hard to say. The TSX composite is still 15% higher than the pre-covid peak, and the full effects of inflation haven't really hit yet. Once more people start renewing their mortgages at 5%+ with their $600k+ mortgages, that's when I think things will start really going South. I can't predict the future though, so for now, I'm still just comfortable gradually deploying the money. If the TSX were to drop below pre-covid levels, I think that's when I would be more comfortable deploying larger amounts of money.
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top