WealthSmith Maneuver Calculator
The Smith Maneuver is an advanced strategy that uses a readvanceable mortgage — a mortgage paired with a home equity line of credit (HELOC) whose limit grows automatically as you pay down principal — to progressively convert non-deductible mortgage debt into potentially tax-deductible investment debt. This calculator illustrates, year by year, how your mortgage balance declines while your investment-loan balance grows by an equivalent amount, and how an investment portfolio builds up from the borrowed funds.
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How the Smith Maneuver works
Each month, you pay your mortgage as usual. Part of that payment goes toward principal — and it's exactly that principal amount that becomes newly available credit on a readvanceable mortgage's HELOC. You borrow that amount and invest it in a non-registered portfolio (stocks, funds, etc.). Because the borrowed money is used to "earn investment income," interest on that HELOC portion may be tax-deductible, subject to CRA rules. Over time, the mortgage balance (non-deductible) shrinks while the HELOC balance (potentially deductible) grows by an equivalent amount — that's the "conversion." In the classic version, the tax refund generated by the deduction is reinvested to pay down the mortgage even faster.
Worked example
With a $400,000 mortgage at 4.5% over 25 years, a HELOC at 6.2%, an assumed 6%/year investment return, and a 40% marginal tax rate, over a 25-year horizon with tax refund reinvestment, the simulation above illustrates a full conversion after several years, a substantial portfolio built from the borrowed capital, but also significant cumulative HELOC interest and increased total debt exposure throughout the strategy's duration.
Risks to understand before implementing this strategy
- Market risk: the invested portfolio can lose value while the HELOC debt remains fixed, creating a possible negative gap between assets and liabilities.
- Interest rate risk: if the HELOC rate rises faster than investment returns, the net cost can exceed the gain.
- Tax risk: deductibility depends on continuously meeting CRA criteria (funds used exclusively to earn income); mixing funds or repurposing them can invalidate the deduction.
- Discipline risk: the strategy requires rigorous month-by-month follow-through, potentially for decades.
Frequently asked questions
Is the Smith Maneuver legal in Canada?
Yes, deducting interest on a loan used to earn investment income is provided for under the Income Tax Act, provided CRA criteria are continuously met (funds actually invested to generate income, adequate documentation, no mixed use of the account). Consult a tax professional to confirm your specific situation.
Do I need a special mortgage product?
Yes, the strategy requires a readvanceable mortgage — a product where the associated line of credit limit automatically increases as you pay down mortgage principal. Not every lender offers this type of product.
What happens if markets fall during the investment period?
The portfolio's value can drop below the borrowed HELOC balance, creating a temporary or lasting negative net position. The HELOC debt itself does not shrink when markets fall. This is the central risk of this leveraged strategy.
Is the tax refund guaranteed every year?
No. The amount depends on your actual marginal tax rate, your other income and deductions, and continued compliance with deductibility rules. This calculator uses a simplified estimate at a constant marginal rate.
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