Using the Equity in Your Home to Invest: Financial Planner Ed Rempel Reviews the Smith Manoeuvre

The Smith Manoeuvre is an investment strategy whereby you borrow against the equity in your home, invest it in long-term growth investments, and use the tax return to pay down your mortgage. Over time, it converts your mortgage into a tax-deductible investment credit line. By continuing this cycle, your mortgage will be paid off sooner and you’ll have a much bigger investment portfolio. 

The idea was developed by financial planner Fraser Smith, and it worked so well that he wrote a book about it in 2002. The basic premise is to turn mortgage interest into something that can be tax deductible, but the Manoeuvre also has important investment advantages. 

Financial planner Ed Rempel – a recognized expert on the Smith Manoeuvre – emphasizes that it’s a risky strategy because you are essentially borrowing to invest, a  leverage tactic that is not for everyone. 

“If you are the type of person that might panic and sell during a large market crash, then the Smith Manoeuvre is not right for you,” Ed Rempel says. “To consider this type of strategy, you need to be able to tolerate the ups and downs of your investments and stay invested for the long term.” 

He says investors should only consider the Smith Manoeuvre if they can stick with it for at least 20 years. “You also need to have the emotional and financial strength necessary to maintain this as a long-term strategy,” he adds. 

Rempel adds that there are three main benefits to the Smith Manoeuvre: you can invest for your future without using your cash flow; you get a tax deduction; and you pay your mortgage off faster. 

He believes the primary advantage comes from the long-term growth of your investments, which is normally far more than the tax benefits. For this reason, he says, you should think of the Smith Manoeuvre primarily as a strategy of borrowing to invest for your future. The tax deduction should not be your main reason for implementing the strategy, he notes. 

Rempel mentions that the Manoeuvre should ideally be considered part of an investor’s retirement plan. “I have helped thousands of Canadians plan for their retirement and found that many people are unable to invest enough to be able to have the retirement they want without a significant effect on their lifestyle,” he says. “In many cases, the Smith Manoeuvre can fill the gap by providing enough additional investments for them to achieve their desired retirement.” 

Many investors have a goal of paying off their mortgage as soon as possible so they can then start saving for retirement, Rempel says. But a significant number of middle-class Canadians continue to face an underfunded retirement, simply because they run out of time. 

Rempel says: “One of the main benefits of the Smith Manoeuvre is that it can help you start saving for your retirement now – not 20 years from now.”