What if your mortgage could do more than just get paid off? In this episode of Moementum Finance, I sit down with Jonah Hoyos (@smithmanoeuvrejonah), a Smith Manoeuvre Certified Mortgage Broker, for a deep dive into one of Canada's most talked-about mortgage and investing strategies: the Smith Manoeuvre™. The basic idea? Instead of simply paying down your non-deductible mortgage debt, you can potentially use the equity you're building in your home to invest in income-producing, non-registered investments and gradually convert non-deductible mortgage debt into tax-deductible investment debt. 🏠 But how does it actually work? And more importantly… how much of a difference can the various Smith Manoeuvre accelerators make? 🤔 Jonah and I go beyond the theory and do an actual walkthrough of the Smith Manoeuvre Certified Professional Calculator, using a hypothetical Canadian homeowner to see how different strategies can affect mortgage conversion, tax savings, investment growth and long-term net worth. In this episode, we cover: 🟣 What the Smith Manoeuvre is and how the strategy works 🟣 How a readvanceable mortgage and HELOC fit into the strategy 🟣 The difference between debt repayment and debt conversion 🟣 How mortgage payments can gradually create investment borrowing capacity 🟣 How the potential tax deductions work 🟣 Why proper account structure and tracing are so important 🟣 The risks of investing with borrowed money 🟣 Why it is a long-term strategy 🟣 How to determine whether the strategy may be appropriate for you 🟣 What to consider when switching to a readvanceable mortgage 🟣 The Smith Manoeuvre accelerators and how they work (e.g. Cash Flow Damming, Cash Flow Diversion, DRIP/dividend strategies, Prime the Pump, Rental Cash Damming, Debt Swap, Power of the Paycheque, Fraser Finagle) 🟣 How combining multiple accelerators can dramatically change the projected results We also use a hypothetical $520,000 mortgage to demonstrate how these strategies can affect the numbers over a 25-year period and impact your net worth based on certain assumptions. The calculator walkthrough illustrates why getting money invested and generating potential tax deductions earlier can have a significant impact on long-term compounding. One of the most interesting parts of the conversation is seeing just how differently the results can look depending on which accelerators are available to a particular homeowner. For example, the discussion shows rental cash damming dramatically shortening the projected conversion timeline in a specific hypothetical scenario. ⚠️ Important considerations The Smith Manoeuvre is not a get-rich-quick strategy and it isn't appropriate for everyone. It involves borrowing to invest, which introduces investment and interest-rate risk. Jonah emphasizes the importance of having a long-term mindset and understanding that the investment debt remains even if markets decline. The strategy also requires careful record-keeping and proper tracing of borrowed funds. The structure of the mortgage, HELOC, tracking accounts and cash flows matters, and different readvanceable mortgage products can have important differences. 🌟 Jonah has graciously offered to respond tonyour questions after youbhave eatched the video. So feel free to ask them here or on YouTube. He has also provided a link where you can try to provide your numbers so he can run the calculator based on your specific scenario. Question for You: If you could use your home equity to build wealth, would you consider the Smith Manoeuvre — YES or NO? https://www.youtube.com/watch?v=fy2-FfCt9t8
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31 Comments
Smith Manoeuvre Jonah @smithmanoeuvrejonah · 13d
Thank you for having me on the show Moe!
Paul @paul12345 · 13d
How does it work if you want income from dividends or distributions?
Not Financial Advice @anpc86 · 13d
You tell people you're more or less done with the mortgage in 5 yrs or less and they just don't believe you and call you a liar... Ah go F yourself ...I don't say it out loud but I give them the face and the hand motion... What can you do. ... Or they say that's not for me ... Holding large amounts of debt for longer is for you ?!? Doesn't really come up because it's touchy , but you do need both sides to be good with the strategy ... If a friend says the other half isnt comfortable.. Then it is what it is ... Not gonna push it further
Le Paresseux Financier @paresseuxfinanc · 13d
We need a special episode on how to invest in Quebec for the Smith Manoeuvre!
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