The Smith Maneuver is one of Canada’s most unique financial strategies. It allows homeowners to make their mortgage interest tax-deductible while simultaneously building an investment portfolio. However, the concept can feel abstract without a practical example.
In this article, we’ll walk through a Smith Maneuver example step by step. By the end, you’ll see how this strategy works in practice, its potential benefits, and how experts like Wise Equity help homeowners implement it effectively.
Starting Point: The Typical Homeowner
Let’s imagine Sarah, a 45-year-old homeowner in Ontario. She has:
- A home valued at $600,000
- A mortgage balance of $350,000
- A mortgage payment of $2,000 per month (with $1,000 going toward principal and $1,000 toward interest)
In a standard mortgage, her $1,000 principal payment reduces the debt, while her $1,000 interest payment is non-deductible. That’s where the Smith Maneuver changes everything.
Step 1: Re-Borrowing the Principal
Each month, Sarah pays $1,000 toward her mortgage principal. Under the Smith Maneuver, that same $1,000 becomes available to borrow again through a readvanceable mortgage.
Instead of letting it sit, she re-borrows the $1,000 and invests it in dividend-paying stocks or mutual funds.
Step 2: Investment Growth Over Time
Over the course of one year, Sarah pays down $12,000 in principal. She then reborrows and invests the same amount. Assuming a 6% annual return on her investments, she earns $720 in the first year.
At the same time, the $12,000 investment loan interest is tax-deductible. If her interest rate is 5%, she pays $600 in interest, which she deducts at tax time.
Step 3: Tax Refund Advantage
With her tax deduction, Sarah receives a refund of about $200 (assuming a 33% tax bracket). She reinvests that refund, accelerating both her mortgage repayment and investment growth.
This cycle repeats every year:
- Mortgage principal is paid.
- Principal is re-borrowed and invested.
- Interest becomes deductible.
- Tax refunds fuel reinvestments.
Long-Term Impact of the Smith Maneuver Example
Fast forward 20 years, and Sarah’s mortgage is fully paid. By consistently re-borrowing and investing, she has built a sizeable portfolio. Even after accounting for loan interest, her investments may total hundreds of thousands of dollars, depending on returns.
Instead of simply owning a mortgage-free home, Sarah now has both a home and an investment portfolio—two pillars of wealth.
Risks in This Example
Of course, no strategy is risk-free. The Smith Maneuver carries:
- Market risk – Investments can lose value.
- Interest rate risk – Higher rates increase loan costs.
- Discipline risk – Borrowed money must only be used for investments.
Still, with proper planning, these risks can be managed.
How Wise Equity Supports Homeowners
Wise Equity helps Canadians like Sarah by:
- Setting up the right mortgage structure.
- Explaining investment options.
- Tracking tax-deductible interest.
- Using calculators to show personalized projections.
With their expertise, homeowners can turn theory into action with confidence.
Conclusion
The Smith Maneuver example illustrates how a straightforward mortgage payment can evolve into a wealth-building strategy. By converting principal into investments, Canadians not only pay off debt but also create long-term financial growth.
With professional guidance from Wise Equity, the Smith Maneuver becomes more than just a concept—it becomes a practical path to financial independence.