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Email this12:46 pm
April 18, 2022
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Borrow against Gic 100-120% of value and deduct interest for investment.
Sounds like a good idea? For example, invest in a Gic at say 5% and mortgage at 4-4.5% with leftover accumulated interest. Then deduct mortgage interest for investment property.
2:31 pm
October 27, 2013
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Known as the Smith Maneuver, it is virtually impossible to make this work with mortgages and GICs as the investment target. FIs do just the opposite. They use the margin between GICs as deposits (liabilities) to make profit (NIM) loaning those funds as mortgages.
You really have to term match your liabilities and assets to avoid naked exposure with interest rate risk.
5:56 pm
October 21, 2013
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Something similar can be profitably done by borrowing against certain paid-up life insurance policies. This worked well when interest rates were sky high but I doubt it would be much use right now. Need bigger margins.
7:18 pm
April 18, 2022
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There's flexibility there to pull equity out of locked in Gics collecting interest, and invest. It may even be a better way than skipping the interest income and depolying cash direct. Also, if rates shot up higher or in a greater inflationary crisis one could pull money out and at least invest in something that has value, and pay back the loan when the Gics mature with devalued dollars.
9:14 am
November 18, 2017
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The Smith is beneficial when dealing with high income tax rates, where the tax-free status overpowers the losing rate spread.
RetirEd
RetirEd
11:53 am
April 14, 2021
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I'm trying to get my head around what this Smith Manoeuvre is.
YNCU has a 5-yr fixed mortgage at 4.59% while offering a 5-yr GIC at 5.25%
Are you suggesting that someone can take a mortgage on their house at 4.59% and simply re-invest the entire amount in a 5.25% GIC and thus make a net 0.66% guaranteed return on their investment with absolutely no risk whatsoever?
Someone with a $1M house could conceivably make $6,600 / year for a total $33,000 after five years.
12:19 pm
April 6, 2013
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The special 4.69% five-year mortgage rate from YNCU is one of those "insured mortgages only" rates. 
One needs to factor in the cost of insuring the mortgage.
As well, CMHC will refuse mortgage insurance on homes that are not below $1 million.
12:28 pm
September 11, 2013
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My understanding is your rate spread example is not the Smith, it's about taking out a mortgage and using the proceeds to buy investment instruments thus making the mortgage interest you're paying tax deductible as it's used for investment purposes. Is my (stand to be corrected) understanding.
That's simplified, lots of "fine print", google it & you'll find tons of info re how it works, how to do it, etc.
12:42 pm
January 12, 2019
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HermanH said
I'm trying to get my head around what this Smith Maneuver is.
. . .
So was I ❗
This is what I found, via Google . . .
Hope that helps ... it helped me. 
- Dean
.
P.S.
There's also a website and book about the Smith Maneuver.
Go here ➡ https://smithmanoeuvre.com/
" Live Long, Healthy ... And Prosper! "
1:01 pm
April 14, 2021
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That was very helpful. Thanks.
6:28 pm
April 18, 2022
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"If you only rent it out for a portion of the year, then only that period (e.g. 4 months) of mortgage interest payments is tax deductible."
https://www.nesto.ca/mortgage-basics/is-mortgage-interest-tax-deductible-in-canada/
So you can't deduct mortgage interest unless you rent out the property.
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