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Smith Manoeuvre Mortgage Comparison II – Top Pick!

To continue with part 2 of our discussion about Smith Manoeuvre Mortgages, Melanie McLister, a mortgage broker from Canadian Mortgage Trends,  will now explain the various columns in her comparison table and tell us about her top re-advancable mortgage pick to complement the Smith Manoeuvre! 

Last time around we explained how “readvanceable mortgages” work and how to get them.  This time we’ll review some features to keep in mind if you’re shopping for one.  Our discussion will follow the columns in our Smith Manoeuvre Mortgage Comparison.  We’ll skip the columns we touched on last time. 

Here we go…

Maximum Loan-to-Value 

Most people who implement the Smith Manoeuvre will make at least a 20% down payment.  This way they avoid paying expensive mortgage insurance fees. 

Virtually all lenders offer 80% financing on their readvanceable products.  If you want to put down only 10%, though, there are lenders who will do it–but you’ll pay mucho grande mortgage insurance premiums (plus interest on these premiums if they are rolled into your mortgage). 

Minimum Credit Score

This number is the lowest credit score you can have and still qualify.  

If you don’t know your credit score you can pull it yourself here, or have a mortgage planner do it for free.  Note:  Your credit (Beacon) score is not part of your credit report.  If you get it yourself from Equifax it will cost you $23.95.

Refer to this article to see how you can get a credit report for free from Equifax. 

Maximum Loan Amount 

This is the maximum amount you can borrow for both your home and line of credit (LOC) combined.

Available Mortgage Terms / Interest Type 

The mortgage term you choose affects your interest rate, and the total interest you pay.  Generally, shorter terms carry lower rates—but that’s not always the case.  For example, many lenders currently charge higher rates on their 1-year mortgages than their 5-year mortgages.  That’s due in part to competition and the sheer demand for 5-year products. 

In any case, you should definitely shop around to compare rates and terms, or have a good mortgage planner do it for you at no cost. 

You also have to consider risk versus reward.  Statistically speaking, you’re better off choosing a shorter fixed term, or a variable rate mortgage, versus a longer-term fixed rate.  If history is a guide, it’ll save you thousands over a lifetime.

However, if there is no room for chance, and you absolutely must know the interest and principle you’ll pay each month, then fixed is for you.  Right or wrong, over 70% of Canadians choose fixed-rate mortgages, and the 5-year fixed is by far the most popular. 

Capitalized Interest

A minority of lenders let you capitalize the interest from your line of credit (i.e.  let you pay your line of credit interest from the line of credit itself).  This makes life a LOT easier when implementing the Smith Manoeuvre, so it’s a key point to consider.  Without this feature, you need to manually pay your line of credit interest yourself each month. 


Fees are everyone’s favorite topic it seems.  Most feel that the evil fee chargers must be defeated!  

In reality, as competition heats up among lenders, fees are coming down.  In most cases (but not all) you’ll at least pay legal fees and/or appraisal costs.  A minority of lenders also charge re-advance or monthly maintenance fees.

LOC Interest compounding 

The line of credit interest compounding period affects the total interest you’ll pay over the life of your credit line.  Let’s use a mortgage example to illustrate.  On a 6.25% 25-year mortgage you’ll pay ~$100 more over 5 years for every $100,000 borrowed if interest is compounded monthly instead of semi-annually.  In other words, semi-annual compounding is the way to go, other things being equal.

Pre-payment Privileges 

If you expect to come into money, make sure your lender allows generous pre-payment privileges (20% minimum per year).  Otherwise you’ll pay interest or penalties for no reason.  Keep in mind, however, that only a minority of Canadians actually pre-pay their mortgage by any significant amount.  Most of my clients have good intentions in the beginning, but end up making only their scheduled payments each month.

Maximum Amortization 

This applies to the “mortgage” portion of your loan (not the line of credit portion).  The longer your amortization, the lower your payments and the more interest you’ll pay.  Keep it at 25 years if you can or you’ll offset much of the Smith Manoeuvre’s benefit.

LOC Call Provisions 

If your lender calls in your line of credit it means they want their money back.  In most cases, this is a trivial point because lenders generally won’t want to break their relationship with you—unless you don’t make your payments.

Automatic LOC Increases 

This is a biggy.  You’ll want to make sure your lender automatically increases the available credit in your LOC as you pay down the principle on your “mortgage” account.  Otherwise you’ll be hassled by calling the lender (or even going into the branch) every month to make the adjustments. 

Note:  This pertains to your line of credit “portion” (or LOC sub-account) and not the total credit you are approved for when you take out the mortgage.  This is often a confusing point to many people.  Your TOTAL authorized credit (your “mortgage” and all lines of credit combined) will never automatically increase. 

Re-application When Increasing LOC

As you pay down your “mortgage” principle, you DON’T want to have to reapply to have your line of credit ceiling raised. 

Re-appraisal to Increase LOC

If you live in an area where home values are increasing rapidly, and you want to borrow more to invest with, look for a lender that will increase your LOC with a simple re-appraisal.  Merix, for example, makes it easy.  They basically just send out an appraiser to your house.  Some lenders, however, consider this a refinance and you’ll need to re-apply and often pay more legal fees. 

Maximum Credit Lines

To implement the Smith Manoeuvre you just need one line of credit.  If you want to have free credit for other things then you’ll need additional lines of credit so your personal interest is not co-mingled with your tax deductible investment interest. 

If you want to spend your credit line on other things, you can choose a lender that offers more than one LOC (or one LOC with multiple sub-accounts).  Alternatively, you can simply apply separately for an additional line of credit from your bank or mortgage planner.

Automatic Investing from LOC 

Very few lenders let you invest directly from your line of credit, but that doesn’t mean you can’t automate the process somewhat.  Most lenders will let you set up automatic debits each month.  That way, your money can easily be transferred from your investment line of credit to your brokerage or 3rd-party investment account.  Alternatively you can give your financial planner post-dated LOC checks with monthly investing instructions.


If you need to move, it’s nice to be able to take your Smith Manoeuvre mortgage with you.  Some lenders allow for this. 

In most cases, however, you’ll need to re-apply all over again.  If your financial situation hasn’t deteriorated then your bank or mortgage planner will make this process relatively painless. 


This column outlines each lender’s unique features and quirks.  It’s worth a scan. 

That just about covers the comparison table.  The only things we haven’t talked about yet are rates and the best overall Smith Manoeuvre product.

In terms of rates, you’ll find the best deals on products that are not pure lines of credit.  LOCs are typically at or near prime rate, which is 6.25% as we speak.  The products with a traditional “mortgage” component currently offer rates up to ½% lower.  The trade-off is that you can’t freely pay them off any time you want.  For current rates call the lender directly or have a mortgage planner do the legwork for you. 

Now for the grand finale:  Which candidate is the best?  As you might surmise after reviewing all the variables, it’s hard to single out the “best” product, although some are clearly nowhere close to “the best.” 

The most popular product we deal with is FirstLine’s Matrix.  Here’s why: 

  • There are no fees.
  • Your principle is fully and automatically re-advanced after you make your mortgage payments.  There is no need to re-apply.
  • The “mortgage” interest rate is usually the lowest available for this type of product.
  • The LOC interest rate may be below prime in some cases.  This is a benefit unavailable with most other lenders.  (Some restrictions apply)
  • The LOC interest compounds semi-annually instead of monthly.
  • If you want to automatically capitalize the LOC interest and automatically invest from the LOC, you can do so using M-Link (M-Link charges a one-time setup fee and $39.95 monthly fee however.)
  • FirstLine’s pre-payment privileges are the best in the industry.
  • FirstLine is a division of CIBC and very easy to work with.
  • The “mortgage” and LOC portions are together considered one charge term. That means, unlike most lenders, FirstLine's LOC is not reported on your credit bureau. As a result, your credit score is generally unaffected by this debt.

The “best” Smith Manoeuvre mortgage is open for debate. While FirstLine’s Matrix is a solid choice, sometimes a client’s individual circumstances will require a different product.  For example, if you want your “mortgage” component to have a variable rate or a 1-year term, a bank product may be your best bet.  If you work with a mortgage planner, make sure they are willing to recommend a bank-only product if it’s in your best interests. 

As months go by this discussion may well become outdated.  I know of several changes in the pipeline already, as well as lenders who are launching new readvanceable products.  It’s a dynamic industry out there. 

Stay tuned!

About Melanie

Melanie McLister is Editor of Canadian Mortgage Trends and a professional Mortgage Planner at Mortgage Architects.  Melanie specializes in online mortgage planning for clients across Canada.  You can read her mortgage commentary daily at www.CanadianMortgageTrends.com and reach her at www.MyVirtualMortgageBroker.com

Important Note

This article is not financial advice and the information is subject to change at any time.  Please consult a qualified financial planner to first make sure the Smith Manoeuvre is right for you.  Then have a good mortgage planner recommend the optimal mortgage for the job.

If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).

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FrugalTrader About the author: FrugalTrader 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.

{ 76 comments… add one }

  • Never Stop Buying September 26, 2007, 5:59 pm

    This is certainly interesting debate between the mortgage brokers :)

    I just want to get my new primary residence, pay off my HELOC as fast as possible, and then maybe do SM.

    To clarify, TD didn’t give me any advice about SM as I didn’t ask, and wasn’t interested at this moment either.
    I only said that I’d pay down rather than SM is because I’ll have cash to pay off 50% of my HELOC in a month, drastically reducing my “bad debt”. Actually, I’m quite confused about SM now that I’d rather not think about it (-_-“)

    My brother is an accountant, so I hope he knows what he’s talking about

  • Ed Rempel September 26, 2007, 8:54 pm

    Hi NSB,

    Debate between mortgage brokers??? Have I left that impression?

    We are not mortgage brokers. We are financial planners. We don’t sell mortgages – we are the ones in the trenches that have to figure out exactly how to implement the SM for each client.

    We just refer clients to wherever they can get the best mortgage for their situation. There are 7 SM readvanceable mortgages and we have contacts at all 7. Mortgage brokers only have access to 3 of the 7.

    Your brother is an accountant that knows about the SM?


  • Online Mortgage Broker September 26, 2007, 9:32 pm

    It’s important to be careful when generalizing. The best professional mortgage planners work along side financial planners “in the trenches” to help people create the optimal SM strategy. FP’s usually don’t have all the necessary insight into mortgages, and mortgage planners shouldn’t pretend to be qualified in investment advice. I’m not sure who Ed is referring to, but good mortgage planners refer clients to ALL lenders with readvanceable mortgages, not just 3. That’s been noted a few times already but it’s important to reiterate.
    Have a great evening,
    Melanie :)

  • Online Mortgage Broker September 28, 2007, 3:58 pm

    Here’s an update as promised on BMO’s Readiline. I got a call today and they are, in fact, still offering P – .85 on a 3-year open variable, which can be used as the “mortgage” portion of their Readiline product. Feel free to email me if anyone needs more info. Variable rates have been rising lately (Scotia just bumped theirs today) so it’s tough to say how long this rate will last. Have a great weekend! Melanie

  • Ed Rempel September 28, 2007, 9:22 pm

    Hi Melanie,

    Really? Scotia no longer offers prime -.85%? We just heard the same thing about National Bank now only offering prime -.5%.

    Apparently, some of the banks have lost some money on the ABCP liquidity issue that has arisen in Canada. It is the “made in Canada” version of the sub-prime mortgage issue in the US.

    We had thought the liquidity issue would just pass, so we are surprised to see 2 banks change their mortgage rates.

    Have you heard any more details, Melanie?


  • Online Mortgage Broker September 29, 2007, 9:07 am

    Yes, unfortunately, Scotia cut the discount on some of their variable rates, including the STEP, to Prime – .50% on Friday. We may soon see more lenders doing the same–many already have.

    You’re right in that tight liquidity is the culprit. Variable mortgage rates are based on the interplay between 30-day bankers’ acceptance (BA) rates and prime rate. Lately BA yields have jumped significantly as you can see here:

    06/20/2007 4.36 %
    07/04/2007 4.51 %
    07/18/2007 4.55 %
    08/01/2007 4.56 %
    08/15/2007 4.87 %
    08/29/2007 4.89 %
    09/12/2007 5.01 %

    Source: http://www.bankofcanada.ca/en/rates/interest-look.html

    That means lenders have been making less on the spread between their cost of funds (BA rates) and the variable interest rates they charge. As a result, many have raised their variable rates (cutting their discount from prime rate) in order to maintain profitability.

    At last week’s Alternative Lending Conference in Toronto, the speakers (all top lender exec’s) forecast 6-12 months before Canada’s money market would loosen up. Lately we’ve seen positive developments in the BA market, however. BA spreads have risen 20 bps in the last 10 days—which puts less pressure on variable rates. In any case, we’re watching with bated breath!

    – Melanie

  • Online Mortgage Broker October 1, 2007, 6:46 pm

    Just a quick follow-up to the above. BMO has raised their variable rate (cut their discount) from P-.85 to P-.50 on the 3-year variable mentioned above. ING will likely cut their discount this week as well. That leaves a just handful of lenders with big discounts to prime.

    – Melanie

  • Ed Rempel October 2, 2007, 2:44 pm

    Hi Melanie,

    I think that what is really happening is that the banks know rates are probably starting to decline. Therefore, they will want variable rates to be higher than fixed, in order to tempt people into taking the fixed rates.

    Until recently, it looked like rates were staying flat or possibly rising, so the banks were content to have variable rates lower than fixed rates. But now that it really looks like rates are about to start declining and have already started falling in the US, variable rates now need to be moved higher than fixed.

    We will stick with variable rates, especially now.


  • Online Mortgage Broker October 3, 2007, 12:37 am

    Hi Ed,

    The catalysts for fixed and variable rate moves have been somewhat different lately. Fixed rates have been declining because their cost-of-funds is based on bond yields, which have been sinking.

    Variable rates, however, are geared to bankers’ acceptance rates, which have been rising. That’s caused the Prime-BA spread to fall from its long-term average of ~160 basis points to ~120 basis points. This has been a direct 40 bps hit to banks’ profit margins in many cases. Recovering that profit is the prmary reason lenders have jacked up variable rates lately.

    Here’s a Fixed/Variable story we wrote with more info, in case it helps.

    Have a great night,

  • layman November 13, 2007, 10:05 pm

    Now its November, where are the best “fully open” rates now, I need flexibility due to sabatical in the new year and potential sale of home but have to renew next month my banks offering 6.75 I heard I can get 5.75 at scotia but they want legal fees to do the switch somebody said if theres more than 20% those fees should be absorbed…I know Canadian Tire is higher but theres no fees if I sell in 6 months whats the best deal. I may use the LOC portion to start my own business which probably qualifies for the SM right.

  • Ed Rempel November 14, 2007, 1:59 am

    Hi, Layman,

    Yes, investing in your business would qualify for the SM, assuming it is a real business. You are taking a sabbatical when you have a business?

    We do offer a free mortgage referral service that can sort this out for you, if you like. See the article on SM mortgages at http://www.milliondollarjourney.com/ed-rempels-picks-for-the-best-smith-manoeuvre-mortgage-ii.htm .


  • layman November 14, 2007, 3:44 pm

    Taking a sabbatical and contemplating a new business…I’ve read the MDJ articles, reviewed the comparison sheet. Note: redfrog compounds daily not yearly and there are legal fees not just appraisal fees…CT covers both if you use their lawyers.

    My current considerations mostly for flexibility are:

    1. Scotia 5.75 on mtg prime for LOC (+fees)
    2. CT fully prime (no fees, but daily)
    3. redfrog same as CT but fees

    The one thing I’m unclear on is the capitilization of interest, ie. where will it be easiest from a payment point of view if I have no income for 6 months

  • MD March 11, 2009, 11:35 am

    Is now a good time to refinance to make a new purchase?

    Bank: BMO
    Condition: 5 year fixed (@4.35)
    Mortgage Term Balance: 15 months
    Ref Mortgage rate: getting a blended mortgage from the bank at a higher rate than current fixed ( 4.48)

    How to get max benefit from this approach? Or can you suggest an alternative?

  • Harvey March 11, 2009, 11:45 am

    Hello MD,
    Are you interested to do SM at the same time when you purchase or you just want to change homes.
    Is your mortgage a Readiline product or not?

  • MD March 11, 2009, 12:40 pm

    I plan on purchasing a second home with the refinance from my current home. I have a fixed 5 year term with BMO. I am breaking the term to refinance in order to purchase another property. The bank is offering a blending mortgage at no penalty.

    What is the benefit of taking the blending mortgage offered by the bank at a higher rate than my current fixed rate.
    Is a variable rate a better option at the moment?
    I don’t understand the question ” is the mortgage a Readline product?
    What is the advantage of using the SM?

  • Harvey March 11, 2009, 1:01 pm

    How much is your mortgage amount currently and what is your remaining amortization?
    How much is the penalty that the bank quoted you?
    Readiline is a product that BMO has which comprises of a mortgage and a line of credit all in one product.
    It is ideal to do Smith Manoeuvre(SM).

    I don’t think blending is a great option in today’s market,if you give me the above numbers i can do a quick calculation for you.

  • MD March 11, 2009, 2:16 pm

    How much is your mortgage amount currently and what is your remaining amortization? 25 years

    How much is the penalty that the bank quoted you? None

    Readiline is a product that BMO has which comprises of a mortgage and a line of credit all in one product. no line of credit

    As of today: 260, 0000 + @ 25 years amortization

    fixed 4.35 fixed 5 years ( 15 months left)

    – balance 15 months on current 4.35 fixed@260,000 plus is the balance

  • Ed Rempel July 19, 2009, 4:12 am

    Hi MD,

    I just noticed your post. It probaby is worth your while to break your mortgage now.

    You said there is no penalty, but if you have a 5-year fixed mortgage, there will be a penalty. It is possible that the penalty is significantly more than just the normal 3-months’ interest.

    Blending is generally never a good idea. It is normally a blend of your current rate and todays “posted” rate. However, nobody should take the “posted” rates, since you can almost always get significant discounts from the posted rate.

    I would suggest to call you bank and ask them for the amount of the penalty if you move your mortgage now. We are recommending 1-year fixed mortgages today and are getting 2.4%. This is 1.95% lower than your current rate, so your savings would be 1.95% * $260,000 *15 months /12 = $6,300. If the penalty is less than that, than it is probably worth breaking it and refinancing now.


  • Wil February 8, 2010, 9:48 pm

    Some really good stuff here, thanks. Anyone feeling perky and needing a challenge?

    We have an RRSP mortgage (i.e. lent the money to ourselves) with about $100,000 outstanding. We also have what seems to be a HELOC with TD where we have the RRSP holding our mortgage. We could borrow the full amount of the mortgage and pay it off entirely. But then we would have interest payments leaving our economic unit – i.e. to TD.

    We figured out – ourselves – that interest to ourselves on the RRSP mortgage was double-taxed – firstly when earned, secondly upon withdrawal from the RRSP. Obviously, then, we want to minimize the interest we are paying on the mortgage.

    Somewhere there is an optimum strategy for how much to borrow from the LOC and how fast to pay off the RRSP mortgage. I’d settle for a reasonable calculation.


    1) Any way to make the SM work on an RRSP mortgage?

    2) Has anybody found or put together a spreadsheet for SM calculations?

    Thanks and regards.


  • cannon_fodder February 8, 2010, 11:43 pm


    I don’t know about an RRSP mortgage and was always warned off that structure.

    But, you will find a free “traditional” SM spreadsheet at this site. The link is embedded in one of the main SM threads.

  • Ed Rempel February 9, 2010, 2:25 am

    Hi Wil,

    Here’s a great idea with only pluses. Get rid of the RRSP mortgage and buy real investments. Then get a new mortgage at a low rate and do the Smith Manoeuvre.

    With an RRSP mortgage, you have to choose between the most expensive mortgage in Canada or the worst RRSP in Canada – or some compromise. Normally, you can borrow at a low rate (We are getting 1.99% today on a 1-year mortgage.) and invest at a high rate (stocks average 10-12%/year long term).

    That gives you a profit spread, depending on how you do it, of 4-10%/yea. With an RRSP mortgage, you lose that entire spread, plus big fees, because whatever rate you choose is both your RRSP return and your mortgage rate.

    Let’s take an example. Normally the plan is to choose the highest reasonable interest rate, in order to put more into your RRSP. Let’s say you take 5% today. That is both a horrible mortgage rate and a horrible RRSP return!

    The RRSP mortgage gives you an illusion that you are paying yourself – but it is just an illusion. If you don’t pay, your RRSP must foreclose on you and sell off your home, just like the bank would.

    Really, there is no difference between you having an RRSP mortgage where you choose 3% and having a 3% GIC in your RRSP plus a 3% mortgage from the bank – other than big fees.

    Once you get rid of the RRSP mortgage, you can invest your RRSP properly, then get a mortgage at a great low rate and do the Smith Manoeuvre – 3 huge pluses.

    If you want to model the SM, use Cannon Fodder’s spreadsheet.


  • BCGameDeveloper September 20, 2010, 4:23 pm

    I’m looking at setting up a HELOC. What currently is a reasonable rate for the LOC portion of one of these mortgages?

    • FrugalTrader FrugalTrader September 20, 2010, 8:03 pm

      @BCGameDeveloper – I believe a good HELOC rate these days is P + 0.50%. Most are offering P+1%.

  • BCGameDeveloper September 21, 2010, 1:21 pm

    National Bank (my current mortgage holder) is offering P+0.75. I’ll shop around to see what other banks might offer.

  • David April 20, 2015, 5:57 pm

    If anyone’s still tracking this thread? LOL If I’m not too late, are there any current resources of mortgage products well suited for the SM? The re-advanceable with automatic limit adjustments in the LOC as well as automatic interest payments and investing? Thanks in advance!!

    • FrugalTrader FrugalTrader April 20, 2015, 6:32 pm

      Hi David,
      My understanding is that most of the products are still valid. I’ve recently confirmed the BMO and Scotia bank products (Scotia will automatically readvance now).

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