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+--- Thread: The Smith Manoeuvre: (/showthread.php?tid=4)
The Smith Manoeuvre: - Barney Rubble - 08-02-2026
What's everyone think of this?
Here's how it works:
- Take out a home equity loan: You take out a second mortgage on your primary residence, using the value of your home as collateral.
- Use the loan to invest: The funds from the second mortgage are used to purchase a diversified investment portfolio (e.g., stocks, bonds, ETFs).
- Pay off the loan with dividends: As the investments grow in value and generate dividends, you use those dividends to pay down the principal amount of the second mortgage.
- Repeat the process: The idea is to continue this cycle, using the dividend income to pay off the mortgage while also growing your investment portfolio.
The Smith Manoeuvre is for people who..
- Have a significant amount of non-registered investments
- Are looking to reduce their mortgage debt quickly
- Want to take advantage of tax-deferred growth on their investments
Be careful because..
- The investment portfolio may fluctuate in value, and you'll need to be comfortable with potential losses.
- Interest rates: If interest rates rise significantly, the cost of borrowing for the second mortgage could increase, making it more challenging to pay off the loan.
- Tax implications: While the investments grow tax-deferred, there may be tax consequences when you withdraw funds or sell securities.