The Smith Maneuver: How Canadians Can Turn Their Mortgage Into a Wealth-Building Tool

John Lee - Arise Mortgage
1 day ago
3 min read

If you own a home in Canada, you might be sitting on a wealth-building opportunity without realizing it. One powerful (and often misunderstood) strategy is the Smith Maneuver — a method that can make your mortgage interest tax-deductible while also helping you grow your investments.

In this article, we’ll break it down in simple terms: how it works, why it could be a game-changer, and when it might be the right fit for you.

How the Smith Maneuver Works

At its core, the Smith Maneuver is a financial strategy that gradually converts your non-deductible mortgage debt into tax-deductible investment debt.

Here’s a step-by-step look:

Get the Right Mortgage Type You’ll need a readvanceable mortgage — also known as a hybrid mortgage — which combines a traditional mortgage with a home equity line of credit (HELOC).
Pay Down Principal Each time you make a mortgage payment, a portion goes toward reducing the principal. As your principal decreases, your HELOC limit increases.
Borrow and Invest You withdraw the newly available HELOC funds and invest them in a non-registered investment account (stocks, ETFs, mutual funds, etc.).
Make Interest Tax-Deductible Because the borrowed funds are used for investment purposes, the interest on your HELOC becomes tax-deductible.
Repeat Monthly With every mortgage payment, your available HELOC credit grows — and you reinvest it, creating a cycle of mortgage reduction + portfolio growth.

Example: If you pay $1,400 toward your mortgage principal each month, that same amount becomes available in your HELOC. You borrow it, invest it, and the interest is deductible — all while your home value continues to (hopefully) appreciate.

Why This Strategy Can Be Powerful

The Smith Maneuver essentially lets you “double dip” your money:

Asset #1: Your Home — which could appreciate over time.
Asset #2: Your Investment Portfolio — which grows as you continually invest HELOC funds.

Potential Benefits:

Turn non-deductible mortgage interest into tax-deductible debt.
Build an investment portfolio without using extra monthly cash flow.
Potentially accelerate long-term wealth growth.

Risks to Consider:

Investments can lose value in the short term, while HELOC interest remains constant.
Requires discipline to reinvest consistently and not use HELOC funds for spending.
You must be comfortable with borrowing to invest, which increases leverage and potential volatility.

When the Smith Maneuver Might Be Right for You

This strategy isn’t for everyone — it works best if:

You have steady income and can handle the cash flow requirements.
You have a long-term investment horizon (10+ years is ideal).
You’re comfortable with market ups and downs.
You can commit to consistent, disciplined investing.

It may not be suitable if you:

Are close to retirement and can’t withstand market volatility.
Don’t have the risk tolerance for leveraged investing.
Have unstable income or already high debt levels.

Key Takeaways

The Smith Maneuver can be a powerful way to turn your mortgage into an investment tool.
The “how” is straightforward: pay down mortgage → increase HELOC → invest → deduct interest.
The “why” is to build wealth faster through a combination of real estate equity and investments.
The “when” depends on your risk tolerance, income stability, and investment time frame.

If you’re curious about whether the Smith Maneuver could work for you, it’s worth talking to a mortgage broker experienced with the strategy and a financial advisor to tailor it to your situation.

Need personalized advice? At Arise Mortgage, we help homeowners understand and implement strategies like the Smith Maneuver safely and effectively. Contact John Lee to discuss your options.