Do I need to refinance to start the Smith Manoeuvre
If you have the right mortgage product, you might be able to skip the refinance.
Do I Need to Refinance to Start the Smith Manoeuvre?
The Short Answer
No, you do not necessarily need to refinance to start the Smith Manoeuvre.
The first step is determining whether you already have the right mortgage product. Many homeowners are surprised to learn they already have everything they need to begin implementing the strategy.
The key is not whether you need a refinance. The key is whether you have a re advanceable mortgage.
What Is a Re Advanceable Mortgage?
A re advanceable mortgage combines a traditional mortgage with a Home Equity Line of Credit (HELOC).
As you make your regular mortgage payments, a portion of each payment goes toward reducing the principal balance of your mortgage. With a re advanceable mortgage, that principal reduction becomes available to borrow again through the attached HELOC.
This feature is what makes the Smith Manoeuvre possible.
Without it, you cannot continuously access the principal you are paying down each month.
How Do I Know If I Have the Right Mortgage Product?
The easiest place to start is by reviewing your mortgage statement.
Look for a Home Equity Line of Credit attached to your mortgage.
If you see a HELOC, the next question is even more important:
Does your available HELOC limit increase as you make mortgage payments?
If the answer is yes, you likely already have the foundation needed to implement the Smith Manoeuvre.
Some examples of re advanceable mortgage products include:
Scotia STEP
TD FlexLine
Manulife One
BMO ReadiLine
CIBC Home Power Plan
National Bank All In One
Each lender has different rules and structures, so it is important to verify how your specific product works.
Why Is This Important?
The Smith Manoeuvre works by converting non tax deductible mortgage debt into tax deductible investment debt over time.
Every month:
You make your regular mortgage payment.
Part of that payment reduces your mortgage principal.
Your HELOC limit increases by a corresponding amount.
You borrow that newly available amount from the HELOC.
The borrowed funds are invested.
This process repeats month after month.
If your mortgage does not automatically make principal available through a HELOC, the strategy cannot function as intended.
When Would I Need to Refinance?
You may need to refinance if:
You do not have a HELOC attached to your mortgage.
Your HELOC limit does not increase as mortgage principal is paid down.
Your current lender does not offer a re advanceable structure.
Your existing mortgage product does not support the strategy properly.
In these situations, refinancing into a re advanceable mortgage may be necessary before implementing the Smith Manoeuvre.
While refinancing can involve legal fees, appraisal costs, or penalties, these costs should be weighed against the long term benefits of having the proper structure in place.
Structure Matters More Than Rate
Many homeowners focus on finding the lowest mortgage rate.
While rate is important, the Smith Manoeuvre is a reminder that structure can be even more important.
A mortgage with a slightly higher rate but the right re advanceable features may create opportunities that a lower rate mortgage simply cannot provide.
The ability to access principal paid down each month is what makes the strategy work.
Without that feature, there is no monthly recycling of equity into investments.
The Next Step
If you are considering the Smith Manoeuvre, start by reviewing your mortgage statement.
Look for:
✓ A Home Equity Line of Credit attached to your mortgage
✓ Confirmation that available credit increases as principal is paid down
✓ A re advanceable mortgage structure
If you are not sure what you have, a mortgage strategy review can help identify whether your current mortgage is already suitable or whether changes may be required before implementing the strategy.
The good news is that many homeowners already have the right foundation in place. The challenge is simply understanding how their mortgage works and whether it can support a long term wealth building strategy like the Smith Manoeuvre.
About the Author
This article was prepared for educational purposes. Homeowners considering the Smith Manoeuvre should seek professional mortgage, tax, and investment advice before implementing any strategy.
Martine Perron of Arc Mortgage is a Smith Manoeuvre Certified Professional who helps Canadian homeowners evaluate whether their mortgage structure can support wealth building strategies designed to reduce debt and build long term net worth.
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martine@arcmortgage.ca
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