Smith Manoeuvre

Monthly order matters

An optional initial draw is borrowed and invested at month 0. Each month, investment-loan interest is paid from outside cash on opening debt using the nominal annual rate divided by 12, rounded to cents. The mortgage uses the existing Canadian engine, including selected compounding, prepayments, a within-term rate change and renewal. Received tax relief can then prepay the mortgage. Positive net principal reduction is reborrowed at the selected percentage, limited by available credit.

Available investment credit is the smaller of your borrowing cap and opening available credit plus net mortgage principal reduction since the start. New draws stop when room runs out. If a mortgage balance grows, capacity can shrink below existing borrowing; that is reported without assuming a forced lender repayment. This is a user-defined credit illustration, not a property-value, regulatory-limit or eligibility calculation.

Investments and tax-relief timing

A selected market loss applies to both existing portfolios before that month’s growth. Effective annual return is converted to monthly growth; the entered annual fee is divided by 12 and deducted monthly. New draws, cash contributions and received refunds left after prepayment are invested at month end. Growth retains precision until displayed balances are rounded.

Each illustration year contains 12 months. Assumed relief is the entered percentage of that year’s paid investment-loan interest, rounded to cents and received after the selected month delay. This timing does not predict actual tax-year dates, authorization or a refund. Unreceived relief is shown separately and excluded from the comparison. Interest is paid from cash, not capitalized or borrowed again to pay itself.

Use the same household cash in both plans

The shared monthly cash budget is the baseline mortgage payment plus strategy investment-loan interest plus the additional monthly cash investment. The baseline does not reborrow; it invests the cash the strategy uses to pay investment-loan interest. When the strategy mortgage costs less, including after early payoff, its freed budget is invested. Refunds generated by assumed interest relief are counted once as a strategy inflow, not as extra outside household cash.

The comparison is strategy investment − strategy mortgage − investment loan − baseline investment + baseline mortgage. It excludes the home and other assets from both sides. Investment-income and sale taxes, transaction costs, provincial deduction restrictions, lender triggers and the value of timing are excluded. It is not a complete household net-worth or after-tax recommendation.

Independent checks

A $12,000 mortgage at 0% over one year repays $1,000 monthly. Reborrowing each principal payment and investing at 0%, with a 12% investment-loan rate and no fees or relief, creates interest of $0, $10, $20 and so on through $110: $660 in year one. Both spend $12,660. The strategy ends with $12,000 invested and $12,000 of investment debt; the baseline has no debt and $660 invested. The strategy difference is negative $660 before investment taxes.

Continuing for a second year costs another $1,440 interest while the $12,000 loan remains due. With assumed 40% interest relief and a four-month delay, $264 from year one arrives at month 16; $576 from year two is still pending at month 24. The received amount is invested after mortgage payoff. The two-year difference is negative $1,836 before investment taxes; the pending amount is not counted.

One borrowing balance, paid interest

The full entered amount is borrowed and invested at the start. Monthly interest is loan × annual rate / 12, rounded to cents and paid from outside cash. Annual interest is twelve such payments. Entered tax relief is a percentage of annual interest, rounded annually; it is an assumption, not a calculation of eligibility or marginal tax brackets.

Investment path and stress

An immediate loss is applied once at the start. Effective annual investment growth is converted to monthly growth; an annual percentage fee is divided by 12 and deducted monthly. Annual values are rounded to cents. The main path holds the borrowing rate constant; a separate rate increase changes only the displayed stressed annual carrying cost.

Read the difference carefully

Value minus debt and carrying costs equals investment value less outstanding borrowing and cumulative interest after assumed relief. Investment taxes, selling costs and the timing value of cash are excluded. The break-even return solves for a final investment value equal to debt plus those carrying costs, including the fee and initial-loss assumptions. It is not a comparison against investing the same outside cash without borrowing.

Independent example: $12,000 borrowed at 12% costs $120 monthly. Assumed 40% relief leaves $864 yearly carrying cost. A 10% effective investment return for two years gives $14,520 before investment taxes. Less $12,000 debt and $1,728 carrying costs leaves $792, before investment taxes. The assumed relief does not certify deductibility.

No readvancing schedule, lender approval, credit-limit changes, tax-refund mortgage prepayments, capitalized loan interest, investment-income taxation, capital-gains calculation or provincial deduction adjustment is simulated.