WealthRefinance-to-Invest (Leverage) Calculator
Borrowing against your home's equity (via a HELOC or mortgage refinance) to invest the lump sum in a non-registered portfolio is sometimes called a “Smith Maneuver” style approach when done with a progressive readvanceable mortgage. This tool illustrates the net cost of borrowing after a potential tax deduction on interest, the projected investment value, and the net result — under both a favourable AND an unfavourable scenario. This is not personalized advice: leverage amplifies gains just as much as losses.
How real-estate leverage for investing works
The principle looks simple on the surface: you borrow against your home's equity at a mortgage-linked interest rate (usually lower than a personal loan), then invest the sum in a non-registered portfolio that, ideally, earns more than the cost of borrowing. If the investment generates eligible taxable income (interest or dividends), the interest paid on the loan may be tax-deductible, reducing the net cost of the debt.
Worked example
You borrow $50,000 at 5.5% on a HELOC, interest-only. You invest that amount in a portfolio assumed to return 6%/yr over 10 years, and your marginal tax rate is 40%.
- Projected value after 10 years: $50,000 × (1.06)^10 ≈ $89,542
- Interest paid each year: $50,000 × 5.5% = $2,750, or $27,500 over 10 years
- If deductible: net annual cost = $2,750 × (1 − 0.40) = $1,650, or $16,500 over 10 years
- Net result ≈ $89,542 − $50,000 (loan balance) − $16,500 (net interest) ≈ $23,042 net gain vs doing nothing
But if the market drops 10%/yr over the same period (unfavourable scenario): projected value ≈ $50,000 × (0.90)^10 ≈ $17,435, while you still owe the full $50,000 principal plus roughly $16,500 net interest — a net result of about −$49,065. That's the essence of leverage risk: losses get amplified just like gains.
The important tax nuance
Under CRA and Revenu Québec rules, interest on money borrowed to earn investment income can be deductible — but generally only if the purpose of the investment is to generate eligible taxable income (interest, dividends). Investments aimed purely at capital gains, with no income ever paid out (e.g. certain non-dividend growth stocks), can lose eligibility for the deduction or draw CRA scrutiny. This calculator lets you toggle the “deductible” assumption to see the impact, but only a tax professional can confirm your actual situation.
The more structured, “progressive” version of this approach, where each mortgage principal payment automatically frees up a new line of credit to reinvest, is known as the Smith Maneuver. It requires a readvanceable mortgage and strict discipline — research it thoroughly before considering this variant.
Frequently asked questions
Is refinancing my home to invest a good idea?
It depends entirely on your risk tolerance, financial stability, and investment horizon. Leverage amplifies both gains AND losses — this calculator is an educational tool, not personalized advice. Consult a fee-only financial planner before deciding.
Is interest on a loan used to invest always tax-deductible?
No. Deductibility generally depends on whether the investment is intended to generate taxable income (interest or dividends). Investments that produce no income and rely solely on capital gains may not qualify, or may draw CRA scrutiny. Consult a tax professional for your specific situation.
What is the “Smith Maneuver”?
It's a structured version of real-estate leverage that uses a readvanceable mortgage: each principal payment automatically frees up a new line of credit to reinvest, with the goal of gradually converting non-deductible mortgage interest into potentially deductible investment interest.
What happens if my investments lose value?
You still owe the full borrowed principal and interest, regardless of investment performance. If the portfolio's value falls below the loan balance, you're left with a real net loss — this is the central risk of the strategy, illustrated by this calculator's unfavourable scenario.
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