Here’s a story from Wednesday’s Toronto Star on the Smith Manoeuvre. It’s very cursory but it does underline the point that the Smith Manoeuvre is not for everyone.
Taking the other side is Peter Majthenyi, one of Canada’s top mortgage agents by volume, and a Mortgage Architects planner. Peter calls the Smith Manoeuvre his “core business.” In the story above he cites one example where the strategy can save/make a homeowner (with home equity) $13,000 a year plus capital gains.
Where do we stand? Well, we talk about the Smith Manoeuvre a lot on CMT and other sites–generally in terms of which mortgage is best for it.
Is it a good investment strategy? That question is best left to a financial advisor–who is far more qualified to judge this based on an individual’s circumstances. From the results we’ve seen, however, the Smith Manoeuvre can be a potent technique for the right kind of risk tolerant investor.
All that said, there is sometimes too much hype about it.
Adrian Mastracci, one of the straightest-talking financial advisors you’ll meet, makes a point worth noting. If your mortgage rate is 6%, and you’re in a 40% tax bracket, simply pre-paying your principle gives you the equivalent of a 10% pre-tax return–with zero risk, zero required skill, and zero hassle!
This approach may possibly net you a lower return long-term, but it’s nonetheless compelling when you consider the Smith Manoeuvre’s uncertainties (link2), initial setup, and monthly maintenance.
If you want to learn more, find a financial advisor expert in the Smith Manoeuvre. Before wasting time, determine if the Smith Manoeuvre is truly even right for you. If you need a referral, just email us.
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