DIY Smith Manoeuvre II – The Readvanceable Mortgages

The Readvanceable Mortgage

Canadian Capitalist contacted me to write part 2 of his DIY Smith Manoeuvre 3 part series.

  • Part 1 more or less introduces The Smith Manoeuvre
  • Part 2, which is this article, is about the various readvanceable mortgages available in Canada and which ones are recommended,
  • and Part 3, discusses some investment options when implementing The Smith Manoeuvre.

If you’ve been following MDJ, you would have seen quite a few postings about The Smith Manoeuvre, tax implications, recommended readvanceable mortgages and investment strategies.  This article however will go over what I think are the best mortgages available for the Smith Manoeuvre.

In the article, Smith Manoeuvre Mortgage Comparison, Melanie from Canadian Mortgage Trends, created a large comparison table of most of the readvanceable mortgages available in Canada.  From this table, I did a bit of digging myself by phoning the mortgage brokers in the local area.

For me, the most important criteria are that it must:

  • Provide a great rate with better than average pre-payment privileges.
  • Be convenient (ie. online) for me to transfer money back and forth between the mortgage, HELOC, and my own bank account/investment account.
  • Readvance automatically.
  • Must not charge any extra appraisal/legal fees.

With this criteria in mind, the readvanceable mortgage candidates came down to:

RBC Homeline

  • The Good: The option of splitting your regular mortgage portion into a fixed and variable “sections” appealed to me b/c you’re basically diversifying your debt.  What I also liked was that the variable portion can be @ prime – 0.75 which is a decent bank rate (the variable rate might be reduced).
  • The Not So Good:  You need an RBC account to transfer money back and forth between a bank account and the HELOC/Mortgage.  Since I don’t bank with RBC, nor do I plan to, this was a big no-no for me.  However, if you do bank with RBC, then this may be a good option.  One other gripe, 5 year closed is the only option with the RBC Homeline.

BMO Readiline

  • The Good: With BMO, you can either have one of their fixed OR variable mortgage products attached to the HELOC.  Both fixed and variable rates are very competitive and the choice of 1-5 years for the fixed option.  What appealed to me most was the variable rate @ prime – 0.85% for 3 yr OPEN.  Note that this rate is only available to clients with decent income and credit (update, this rate may not be available anymore). What I also liked about the BMO product was that I can pay the HELOC via EFT transfer from any bank.
  • The Not So Good:  In order to get true convenience, you need a BMO bank account.  With a BMO bank account, not only can you pay down your HELOC through EFT, you can transfer money from your HELOC to your bank account.  If you don’t have a bank account with BMO and you need some HELOC cash, you need to write a HELOC cheque to yourself and go to an ATM.  Another downside is that the only way to pay down the mortgage portion is via branch locations.

Firstline Matrix Mortgage

  • The Good: Competitive 5 year fixed rates.  What I like best about this product is that whoever who you bank with (unlike the other options), you can transfer money back and forth electronically between your mortgage/HELOC and your bank account.  I’m not sure about the other mortgages, but the HELOC on this mortgage isn’t reported to the credit bureau.
  • The Not So Good: No 1 yr fixed rate and no variable rate option.

Conclusions:

The three readvanceable mortgages listed above are my top picks for the Smith Maneouvre.  Personally, I’m torn between 2 products, the BMO Readiline and the Firstline Matrix.  On one hand, I have the BMO Readiline which provides a great variable rate @ prime – 0.85% and it’s OPEN (this rate may not be available anymore).  On the other hand, the Firstline Matrix mortgage provides the most convenience as I can transfer money back and forth between the mortgage/HELOC and my bank accounts without leaving my chair.

Update:  I have since chosen the BMO readiline product for my SM.  Email me if you want the name of the experienced SM mortgage broker that I used.

I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!

Sign up below to get a copy of our free eBook: Can I Retire Yet?

Posted in

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

42 Comments
Newest
Oldest
Inline Feedbacks
View all comments
Jan 2010 Net Worth Update (+4.43) | Million Dollar Journey
14 years ago

[…] Residence Mortgage (readvanceable): $23,700.00 […]

Dec 2009 Net Worth Update (+2.11%) – Year End Summary | Million Dollar Journey
14 years ago

[…] Residence Mortgage (readvanceable): $25,200.00 […]

Nov 2009 Net Worth Update (+1.65%) | Million Dollar Journey
14 years ago

[…] Residence Mortgage (readvanceable): $26,800.00 […]

Oct 2009 Net Worth Update (+1.58%): Halloween Edition | Million Dollar Journey
14 years ago

[…] Residence Mortgage (readvanceable): $29,200.00 […]

Sept 2009 Net Worth Update (+2.78%) – Pension Buy Back Edition | Million Dollar Journey
14 years ago

[…] Residence Mortgage (readvanceable): $30,700.00 […]

Converting a Principal Residence into a Rental Property | Million Dollar Journey
14 years ago

[…] What’s the right way to do it?  Here’s my opinion –  If you plan from the beginning that the house is going to be a rental when you move in future, then I would personally pay as little as possible on the mortgage throughout the years of living there, and save the difference as cash.  The accumulated cash will serve as a down payment on the future new residence, leaving the rental mortgage untouched and converted to a tax deductible mortgage. […]

Tax Deductible Mortgage Plan (TDMP) - Worth It? | Million Dollar Journey
14 years ago

[…] in leveraging their home to invest to hand off the whole setup.  That is, TDMP will arrange the readvanceable mortgage, investment account/investments along with arranging payments, and mortgage pay down.  […]

Leveraged RRSP vs The Smith Manoeuvre | Million Dollar Journey
14 years ago

[…] instead of a non-registered portfolio (like the Smith Manoeuvre).  Here is the question: I have a readvanceable mortgage – Take your equity out as you pay your mortgage (max payment you can afford like in SM), and invest […]

The Smith Maneouvre during a Market Crash | Million Dollar Journey
15 years ago

[…] With current market conditions, it’s a gut check to see who can really take the leveraged investing heat.  With the possibility of HELOC (home equity line of credit) rates, which are traditionally at prime, to increase above prime, it will make this strategy even more expensive.  However, with a slow economy, the prime lending rates will most likely decrease even further, which will hopefully even out any increases.  With that said, The Smith Manoeuvre strategy is still a valid option, just with one less readvanceable mortgage available along with the potential with higher HELOC rates.  For those of you looking for alternative readvanceable mortgages, here are some of my other favorites. […]

The Difference Between Good Debt and Bad Debt | Million Dollar Journey
15 years ago

[…] Investment Loan – For example, with the Smith Manoeuvre, the HELOC interest on a readvanceable mortgage is 100% tax deductible providing that the HELOC is invested in income producing […]