By now, most people here know that I’m interested in the Smith Manoeuvre. If you are new to this concept, you can read more about them in my article “The Smith Manoeuvre – A Wealth Strategy“.

From surfing the web researching the Smith Manoeuvre, I discovered a great thread on RedFlagDeals.com that talks exclusively about the strategy. This includes the tax implications, the various mortgages available, and some calculations relating to potential return.

Cannon_Fodder, a regular contributor of RFD has created an Excel spreadsheet that he is willing to share with the world. He was even gracious enough to allow me to share the spreadsheet with you!

Update: Cannon_Fodder has released version 2 of the SM Spreadsheet.

Since the Excel spreadsheet doesn’t come with a manual, I will provide a few notes on HOW to use the program. Note, you are going to have to enable macros when you open the program.

• Go to the “input” tab which for the most part is the only sheet you’ll need. The other tabs are primarily “Calculation” sheets, however, they can be helpful to see exactly what is going on.
• Enter all relevant information as it pertains to you. The only portion that I have confusion with was the “Periodic investments” portion. If you choose biweekly payments (26 payments/year), then your periodic investments will be calculated as bi-weekly also. So if you’re accustomed to investing monthly use this formula: Periodic Investment = (Monthly Investment * 12 / 26)
• Everything else should be self explanatory. I didn’t fool around with the “Cash Flow Damn” option, so I won’t comment on that.
• Remember that your “Starting LOC” value is the equity in your home. In mathematical terms: (Home Value x 75%) – Mortgage Balance.

Tomorrow, I will go through my personal scenario to see how the Smith Manoeuvre stacks up.

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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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.

• David April 12, 2007, 1:32 am

I have tried both products, and Cannon_Fodder’s calculator produces numbers that are very close to those in the Smithman Calculator. I found Cannon_Fodder’s useful beyond the original, as it allows for the existence of unconsumed LOC, a regularly increasing mortgage payment, a variety of payment frequencies, and the ready ability to adjust your initial mortgage payment. The results allow you to view your mortgage and investment over a period of 25 years. This allows folks who have accelerated their mortgage to estimate the portfolio’s value, any time during the 25 years of the calculation.

The Smithman Calculator is a bit more challenging to use if you have an accelerated mortgage, as there is no simple way to address the portfolio growth beyond the original mortgage amortization.

The SM Calculator also allows you to compare the results of the Smith Manoeuvre with Chilton’s “Wealthy Barber” and invest 10% of your income in the same vehicle, or use Garth Turner’s method of rapidly paying down your mortgage, then re-borrowing some of the equity in the home to fund a portfolio. The Smith Manoeuvre seems always to be superior to these two other options. Since both of these are commonly used strategies, it is clear why Ed Rempel suggests to “shoot the Sacred Cow” in his posts.

Both are useful tools to help one arrive at a decision about the value of the Smith Manoeuvre in their particular financial situation.

• Cannon_fodder April 12, 2007, 9:44 pm

David,
I would be interested to understand how my calculations differ from those of the SM calculator. I had found some errors which I corrected a few days ago but that may not address what you have seen. It took me awhile to figure out the discrepancies between my calculator and the specific examples in SM book when he talked about the Black’s using Step III. I had to go into the working tabs to manually place the liquidation of the \$30k and \$20k in interest bearing securities at the right month before it matched exactly.

I will take the opportunity to start putting version numbers on it so I can keep track of the iterations.

• Cannon_fodder April 12, 2007, 10:01 pm

Thanks to FrugalTrader’s suggestion, I have created an addition to my calculator which attempts to demonstrate the effect of using dividends from your growing portfolio to pay down the mortgage faster.
I really would appreciate someone examining it for accuracy and relevancy of my assumptions. At this point, it only works for the monthly mortgage scenario.
Here are some pointers:
1. I’ve used drop down boxes so you can choose which province, and then it will give you choices (based on 2007 taxation year) of which marginal tax rate you can select. It then will automatically put in the marginal dividend tax rate (I’m not bothering with small business dividends). This does restrict the input of marginal tax rate, but I hope accuracy will be appreciated more than convenience.
2. I applied dividend payments, in this case, on a monthly basis. I could have changed this to only applying the dividends at the end of the year. Doing quarterly applications will provide more of a challenge so I will see how this goes on (especially if trying to adapt this to the twice monthly or biweekly mortgages). So, I take the dividend yield (which you input) and divide it by 12 and apply that to the previous months end portfolio balance. It then gets applied as a prepayment to the mortgage, reborrowed and invested.
3. I calculate the tax liability and then apply that against the tax refund on an annual basis. For negative marginal dividend tax rates, you will get even more money back, and with positive marginal dividend tax rates, you get less back.
4. Running through some scenarios made me think. For example, if you think equity investments will grow at X%, would you not adjust the growth rate if you were investing in dividend producing equity investments? E.G., take an 8% growth portfolio that produces 0% in dividends. If you now are thinking about moving that into dividend producing investments, would you split the 8% such as 6% growth and 2% dividends? If so, it is quite alarming to see what happens if your LOC interest rate is higher than your growth rate in spite of the dividends. Your portfolio net of LOC is actually negative until just after you pay down the mortgage.
So, if anyone wants to give it the critical eye, I would appreciate the feedback.

• Cannon_fodder April 12, 2007, 10:03 pm

Oh, and thank you to FrugalTrader for giving a ‘cheat sheet’ on how to use the calculator. The calculator is free, but the manual costs \$9.95 plus shipping and handling. ;-)

• David April 16, 2007, 12:06 pm

Cannon_Fodder,
I’m out of town for a few days, and will be in touch with you shortly. I’ll have to download your most recent calculator for review.

It seems that you are building a much more comprehensive tool than the original.

David

• FrugalTrader April 16, 2007, 12:14 pm

Great job indeed Cannon! Thanks again for sharing.

• Manoeuvring Smith August 11, 2007, 2:32 pm

Hi,

First I would like to say great site to FT!

I am interested in implementing the smith manoeuvre and downloaded the excel file to try some scenarios. I have a question regarding the interest expense on the loan. I have read the smith manoeuvre book and he talks about capitalizing the interest payment which meaning paying for the interest with the loan. Does the excel file do that? From what I can tell for the monthly payment tab it only resets cumulative interest expense per year at year end and does not factor in this payment. It does factor in the tax refund and contributing dividends to the mortgage but nothing about the interest charges you have to pay. What’s up with that?

Wouldn’t that reduce your bottom line because instead of having \$1k (whatever the interest charge is) to invest you have to use it to pay off the interest on the loan? I realize you get a tax refund but if the interest owed is \$1k and you get \$300 back in taxes you still have to pay \$700 in order for the principal not to increase and for you not to default on the loan.

• Cannon_fodder August 11, 2007, 6:23 pm

Manoeuvring Smith: Try to strip away all of the extra things going on and concentrate only on a Step 1 scenario when using the calculator. Hopefully you will see that (under reasonable inputs) the amount to invest each month actually goes down even though the principle paydown increases. This is because you borrow the full principle paydown but use a portion of that to pay the interest on the growing LOC.

If I’ve misunderstood your question, then feel free to throw some actual numbers at me and perhaps I can see your perspective.

• Manoeuvring Smith August 11, 2007, 9:24 pm

Thanks Cannon_fodder, I didn’t notice in the money to invest column it minuses the LOC interest.

One more question:
If the LOC interest rate and the investment growth rate are the same (i.e. both 6%) why would the net portfolio have minimum returns (almost \$0)? Is this because you are constantly reducing the investment portfolio by the same amount of interest owed on the LOC? Does that mean the LOC amount owed is still being compounded because you are in reality not really paying off the interest owed?

• Cannon_fodder August 12, 2007, 11:05 am

MS – if the LOC interest rate and investment growth rate are the same, then the net portfolio will have negative returns. This is because the interest rate is compounded monthly while the investment return is compounded annually (I’ve noticed that the true Smith calculator compounds the investment growth monthly which probably goes against what most people would expect).

Thus, the LOC is growing faster than the investments. They are both growing because you are still adding reborrowed principal (and perhaps tax refunds) but 6% compounded monthly is about 6.18%.

• Manoeuvring Smith August 12, 2007, 3:00 pm

Not according to the model I’m using. I have version 1.11. I have only included step 1, 25 years, 12 payments per year and LOC interest rate =investment growth rate. You have the investment interest rate at ((i/12+1)^(m/12)-1), should it be ((i/m+1)^m-1)/12, where i is interest rate and m is compounding times per year?

• Cannon_fodder August 12, 2007, 5:41 pm

MS – Ah, yes, version 1.11. I couldn’t figure out how the SM was getting its numbers until I changed the investment growth rate to compounding monthly. Later versions don’t have that “error”.
So, when using 1.11, you will see zero difference as opposed to negative. The reasons are the same.
It is still a helpful demonstration that shows you want to minimize the borrowing costs and invest in higher growth investments. However, even when growth in investments and LOC are very close, you still are paying down your mortgage faster. When all is said and done, your net worth does grow faster than not implementing the SM.
Whether it is sufficiently comfortable to participate in this manoeuvre is up to each individual.

• Manoeuvring Smith August 12, 2007, 10:33 pm

• Cannon_fodder August 13, 2007, 9:49 am

Unfortunately there has been some professional interest in the calculator but with various customizations based on their needs. Until I see how these firms want to structure the licencing of the calculator, I don’t feel it wise to post any more updates.

If you have any specific numbers you want me to run through the latest calculator, you can ask FT to setup an introduction through email.

• Manoeuvring Smith August 13, 2007, 12:51 pm

Did I just get the Cannon_fodder Manoeuvre? lol!

• anthony colad October 20, 2007, 2:23 pm

what kind of % will l see anually a ball park figure thanks a.c

• anthony colad October 20, 2007, 2:26 pm

what kind of return would l see yearly

• Cannon_fodder October 21, 2007, 10:04 am

A.C.,

Are you talking about investment return? When I plug the numbers in to any investment return scenarios, I use a 3% inflation rate and an investment return of inflation rate + 5% for preretirement and inflation rate + 4% for post retirement.

What you will actually get is unknown.

• Investing Newb November 1, 2007, 1:29 pm

Does anyone know what happens should the Real Estate market tank and home equities shrink?
Should we convert our LOC back as quickly as possible?

Not trying to be negative but it does happen every decade or so.

• Ed Rempel November 2, 2007, 12:48 am

Hi Newb,

Good question. From experience, nothing happens when the real estate market tanks. The Canadian banks have not in practice reduced credit line limits when the home drops in value.

I lived in Calgary for a year after the last real estate boom in the late 80’s. Home values fell sharply (I believe 40-50%) and I met a few people that walked into the bank and handed in the keys to their home – because they could buy the neighbours similar home for \$50,000 less than their current mortgage.

However, I did not hear of any cases where the bank reduced a credit line limit.

The story was similar in Toronto in the early 90’s where home values fell 30% over 7 years. Again, I’m not aware of any cases where banks reduced credit line limits.

Therefore, you can just continue your SM.

Ed

• HDEAN December 10, 2007, 12:40 am

Hi All,

Was capital gain considered in the spreadsheet. If i want to payoff my mortgage after X years, I would have to liquidate my investment which will result in a capital gain.

• Cannon_fodder December 11, 2007, 12:52 am

HDEAN,

No, capital gain taxes would still apply depending on how you liquidate your assets. Since this could not be easily calculated it is left to the user to decide for themselves. You could take the output and plug it into one of the many free calculators found on the web.

• Frank February 10, 2008, 2:09 pm

Has anyone ran the numbers using a T-SWP (roc) fund?

Thanks

• Ed Rempel February 10, 2008, 2:42 pm

Hi Frank,

Yes. This is called the Smith/Snyder. Depending on how you do it, the T-SWP or ROC fund results in either:

1) mush more work and zero benefit.
2) loses most of the long term gain of the SM.

There are no advantages at all of taking the distribution from the fund. Every dollar of distribution you take means one dollar of your investment loan becomes non-deductible. If you take an 8% distribution, then after 12 years, your entire investment loan is NON-deductible. We call this the “Reverse Smith Manoeuvre”, since it is a process of converting a tax decutible loan into a NON-deductible loan.

If you put the distribution onto your mortgage and don’t reborrow to invest, most of the long term, exponential compound growth of your investments is lost.

If you put the distribution onto your mortgage and do reinvest, then you have paid down your mortgage an extra amount by the amount of the distribution, but you have the same amount of your investment loan that is now non-deductible. There is zero benefit from all these transactions, and you would then have to the the “Snyder Tax Calculation” every year to figure out how much of your investment loan interest you can still deduct.

If you pay all of the distribution onto the investment loan, then you maintain the tax-deductibility of your loan, but again you lose most of the long term, exponential compound growth of your investments.

The best strategy is to reinvest the entire distribution.

There are all kinds of variations of the SM that do not mess up the tax deductions. If you look at the SM within your total financial picture, you can usually come up with better strategies.

Ed

• Cannon_fodder February 10, 2008, 6:20 pm

Frank,

The only updated versions to the spreadsheet are now commercial versions. None of the commercial versions support Smith/Snyder… but, if you are interested in exploring the Rempel Maximum, I suggest you contact Ed via this blog or his website.

• Jared March 10, 2008, 1:16 am

Hey Cannon,

Is the link to the spreadsheet that is provided in this post the last free version you released? I didn’t see a version # anywhere in it and don’t want to use if it there are errors. If not, is there anywhere I can download your last free version?

Also, where can we get the commericial versions as I wouldn’t mind paying for good products

• Cannon_fodder March 10, 2008, 8:53 am

Jared,

Yes, this is the last free version that I released. The current commercial versions were customized for client purposes and add a few new features as well as clean up some errors. The errors weren’t significant though (at least in my opinion).

The commercial versions are intended for financial planners. This is why I spoke with FT about working an arrangement whereby readers of his blog could contact either one of us to run individual scenarios through the commercial versions for a fee. The fee would be much less than buying the Smithman calculator because I figured you really only wanted to try a few scenarios to see if the SM works for you.

The fee would be \$3 for running it through 1 set of inputs and \$10 for running 4 sets of inputs. In return you would get a summary page, a graph and a complete breakdown of the SM for every payment made in each scenario.

The commercial version was enhanced to support 40 year amortization, semi-annual and monthly compounding mortgages, Rempel Maximum, mortgages with as little as 20% down and corrects some minor issues.

As of right now, there are 29 inputs to the commercial version so it is relatively feature-rich.

Feel ‘free’ (literally!) to continue to use the version I posted. Otherwise, you can contact FT for more information about the service.

• handler March 11, 2008, 11:29 pm

I think the SMITH manouvre is great. and I am doing it myself…read the book twice…and was convinced, in OTTAWA housing is v costly, and I dont want a 500k asset, paid off, just sitting there…..moeny needs to work..so I dont have to…

• Neil March 16, 2008, 12:27 pm

I am also a big fan of the Smith Manoeuvre. I have been doing this for two years now and I have invested in divident-paying blue-chip stocks.

An article in the NEW IN HOMES section in the Toronto Star was published Yesterday (March 15/08) which alarmed me.

The article is called “Seek advice before making mortgage manoeuvre.

My major concern is the following quotation from the article:

“Under CRA Rules, interest paid on money used from a mortgage to produce capital gains is not tax deductible. As a result, if a Smith Manoeuvre loan is used to buy stocks mainly for the purpose of capital appreciation, the interest is not tax deductible.“

I wrote to Fraser Smith for his comments.

Neil

• DAvid March 17, 2008, 12:19 pm

Neil,
Actually your quote has been repeatedly mentioned in the past. Interest on money from any source is deductible only if used to generate income. This is explained in Fraser’s book, where the purchase of investments which can only appreciate (gold, art, etc.) will not allow deductions to be claimed. Any other investment with the expectation of income is likely to have some appreciation (small business, dividend paying stocks, rental property, etc.), and a capital gain may be triggered. AS far as I know, as long as there is an expectation of income, the investment may allow interest costs to be deducted.

DAvid

• Sam March 25, 2008, 12:20 pm

Hi all,

I’m very new to this whole thing so pls forgive me if i put something out of context. I’m considering smith Manoeuvre and needed some help. my situation :

mortgage: 224500 /1 yr old/5.2%/ 1YR TERM 24 yrs amortization left.with scotiabank.

I spoke to a banking officer who told me that they could bump the whole thing for me a total line of 240000.(i’m sorry if this is not too informative, they just got pissed when I mentioned SM and were pretty reluctant after).The interest on the LOC is prime.

If i understand SM correctly :
1) I plan to take out 10,000 and invest in the scotia canadian dividend fund in a non-regd acct.

2) with every mortgage payment i make , the principal will be directed to increasing the line of credit. The principal less the interest due on the LOC will be withdrawn and invested in the fund.

3) All dividends, tax refunds etc will be used to reduce the mortgage principal.

This goes on till the mortgage is 0 and LOC balance is equal to the original mortgage principal.

I would greatly appreciate any input,advice or recommendations on the same.

Thank you
Sam

• FrugalTrader March 25, 2008, 12:53 pm

Sam, your procedure sounds correct. One thing you might want to look out for is to make sure that the distributions are dividends only with no ROC. Paperwork gets a little more complicated if you have ROC as part of your distribution.

• DAvid March 25, 2008, 12:36 pm

Sam,
You might be wise to learn the background behind their attitude. That you are keeping your money entirely in their products should have them very satisfied with your interest in building a portfolio.
The steps you have described meet the goals of the SM, though I can’t comment on the suitability of your choice in investment, as I have no knowledge of the returns it offers.

DAvid

• sam March 27, 2008, 4:27 pm

hi guys,

thanks for the reply. I had just one more question. I’ve read a couple of forums and I see that CCRA is pretty pissed with people who do this maneouvre. Has anyone here actually implemented this for at least a year or two ??

Thanks
sam

• sam March 28, 2008, 3:29 pm

hi guys,

adding onto my first question: suppose the mutual fund that I invest my mortgage principal in has a bad year and does not declare dividends . What happens with respect to taxation ??

Thanks
Sam

• FrugalTrader March 28, 2008, 3:32 pm

Sam, the rule of thumb (as of right now) is that as long as there is an “expectation” of profit/income/dividend, the investment loan will remain tax deductible.

• Randy June 14, 2008, 8:28 pm

Hi All,

It’s odd that someone would say that the CRA is ‘pretty pissed’ with people who do this manueouvre. I would suspect that is an interpretation of the unfortunate things that happen when a taxpayer doesn’t _correctly_ follow the Smith plan.

Surely our government has nothing against the Smith plan in principle – it knows that more investment put into things that will produce income will inevitably produce even more income, and more tax eventually collected all around.

The Smith Maneouvre is not sneaky or underhanded in any way. It’s no more likely that the CRA people are ‘pissed’ when you put money into your RRSP instead of paying 40% of it in tax. There again, our government knows that if we were to invest carefully in a retirement plan now, we will be someday be a source of tax revenue instead of a drain on the economy.

I won’t go so far to say that the CRA is your friend, I am only saying that retirement in poverty runs counter to their interests, too.

Randy

• Marc D. July 22, 2008, 9:31 pm

just a word of caution – I noticed a slight error in the way that the spreadsheet calculated the tax refund – so to anyone using this make sure you double check your numbers.

• FrugalTrader July 22, 2008, 10:10 pm

Marc, if there is a problem please provide details so that we can fix the calculation error.

• Marc D. July 22, 2008, 11:10 pm

It’s in column G. The formula used is a bit confusing (and I don’t totally understand it), so I created my own to see if the numbers matched up. They did for a good chunk of the amortization but I noticed they started to diverge.

It was because the calculation for the tax refund didn’t use the cumulative interest payments for the year (it used the cumulative interest for 1 period earlier).

The example I used was 225,000 down, plain jane SM, with no other payments, etc. everything else stock. I noticed the error for the 7/1/2019 period.

Sorry, this sounds a bit disjointed, but again, I wasn’t too sure how he calculated (using the Index function). I changed it to use VLOOKUP for 12/31/XXXX.

• Chuck July 23, 2008, 12:09 am

The issue might be related to the fact that 2018 is an anomalous year. Looking at the “Bi-Weekly” payments worksheet there are 27 payments, not the standard 26. (Rows 292 – 318 inclusive).

The index function is set to only bring back 26 rows when calculating the tax refund. (I think)

• Marc D. July 23, 2008, 2:00 am

Clearly there are smarter people than me on here!

As I said before, I used a vlookup to basically search for 12/31/Year-1 and that seems to work well.

And I did forget to mention that it was the biweekly payments schedule that I was looking at.

• Cannon_fodder July 23, 2008, 12:32 pm

Marc,

Thanks for the ‘interest’ in the calculator. There are other errors that are more significant but I attempted to build a calculator that gave me better insight into how the SM worked and could duplicate the answers in Smith’s book. As a result I discovered some issues with the results put into his book.

The most serious one is that the calculator I posted uses the same method to calculate investment growth – monthly compounding. I have a problem with that because when I think of 8% growth on an investment I think annual compounding. However, this is one of the concessions I made to get the same answers as in Smith’s book.

I did get in contact with his company to highlight some calculation errors that I believe I discovered (I don’t have his calculator but others have done calculations for me) but I don’t know if they have updated the calculator or not.

Feel free to email FT the details of the scenario you are trying to calculate and I will run the results through my latest commercial calculator and send you the complete output (input page and calculations page).

• William September 2, 2009, 12:19 pm

Cannon_fodder and FT,

Thanks a lot for making the latest version of the SM Spreadsheet available to all. It’s really a great tool!

I guess something is not working the way it should. When I enter the “HELOC Starting Value” it’s not added to the “Investments” in the “Calculations” sheet.

In a previous version of the calculator it use to work like I’m describing, and it makes sense because I will have around 31% equity when I start the SM which means I will have 11% credit available in the HELOC ready to invest. I will be investing 10% from the HELOC which will make it the “HELOC Starting Value”.

Thanks again for the great calculator!
William

• cannon_fodder September 4, 2009, 12:01 pm

William,

You are welcome.

It has been so long since I looked at the original but, yes, it is different. They are independent but connected. So, you will need to add whatever your initial investments are to the mix.

In fact, you can use this spreadsheet simply as a mortgage amortization schedule… or you can forego anything to do with mortgage and use it for projecting investment growth. It doesn’t have to be about the SM so I tried to make it more flexible.

I hope this helps…

• William September 4, 2009, 1:08 pm

Cannon_fodder,

As I don’t have an investment portfolio, the initial amount I will have to invest is the 25K lump sum from the HELOC (from your example).

If I use the 25K as Non-registered Assets, it gets applied to the Principal Amount and then shows up on the Investments. This doesn’t work for me because I haven’t actually reduce the principal.
On the other hand, if I use the 25K as HELOC Starting Value, it doesn’t show up on the Investments.

Am I missing something? Can you please tell me how I input the 25K lump sum from the HELOC as initial investment

Thanks again!

William

• cannon_fodder September 4, 2009, 3:52 pm

William,

Sometimes when you create something that is comprehensive, you also make it complex. I admit I haven’t spent a lot of time adding instructions to it so it won’t be as intuitive to anyone else but me.

If you don’t want the investments to be applied to the principal then you must make sure you do not have Step 3 checked. This option, when checked, assumes you already had some investments (I believe it was GIC’s in Fraser Smith’s book) that you would sell, take the proceeds and reduce the principal, and then borrow the principal back to invest in something else – likely equities.

Make sure you look over all of the check boxes, radio buttons, etc. to ensure they apply in your situation.

• William September 4, 2009, 4:47 pm

Cannon_fodder,

That’s what I was missing.
I unchecked Step 3, added 25K to Non-registered investments and 25K to HELOC starting value and everything makes sense now.
Thanks again!

William

• DocB September 17, 2010, 2:32 am

I’m surprised nobody has been active on this thread since last year…

Cannon – excellent job with the spreadsheet, you are an excel guru. I always like running models, it’s amazing what they can reveal…this one you created is no exception.

Someone might have already asked this and it might already have been answered but the “calculate” button does not appear to have any function – am i missing something? I’m running excel 2007.

Also, what is the point of the ”house value growth rate”? It does not seem to effect any of the calculations?

Cheers

• FrugalTrader September 17, 2010, 8:41 am

@Doc, do you have macros enabled?

• DocB September 17, 2010, 2:52 pm

@FT, I do have macros enabled. The spreadsheet appears to auto-update without me having to hit “calculate”…

The only thing that doesn’t auto-update is “House Value Growth Rate”… that does not seem to have any functional component in this spreadsheet … clearly I’m missing something.

Cannon_Fodder is there a tweaked commercial version that I can purchase somewhere?

Cheers

• cannon_fodder September 17, 2010, 3:41 pm

Thanks for the kind words. I created a more robust calculator for commercial purposes. And I took out some features to be able to post a slimmed down version here for free.

In the commercial version the calculations can be more complex and not ideal when showing a client. You want to put all the numbers in and then hit calculate to see the impact to go from one scenario to another.

Secondly the house value is not enabled here. It was put in there for the use of readvancing additional equity during the SM every X years.

I truly believe that this meets the needs of 95% of people. The other 5% would be relevant only if you used this in a financial advisor capacity.

Please note that the marginal tax rates change and you are allowed to put in your figures as appropriate.

• DocB September 17, 2010, 5:40 pm

@CF, thanks for the clarification I was banging my head against my desk for a few hours!

I find this spreadsheet very useful, I happened upon it by chance after watching a video by David Ingram (below) and then doing a google search for Smith Maneuver in excel.

I actually really like the re-advancing additional equity for SM if home value increases, I see some SM mortgages allow for LOC to be increased if home value rises without any legal fees. Is there a way I can activate this feature in your spreadsheet?

Cheers

• cannon_fodder September 18, 2010, 8:56 am

DocB,

Again, I am glad you find it useful. It certainly helped me a great deal but it was more a labour of love than anything.

I’m sorry but increasing the readvanceable portion based on a growing home value was a feature created for a client in the commercial version. There is no way to activate it.

You could manually adjust it by running a scenario, say, for five years. Copying the end numbers down and then using them to seed the new scenario. It wouldn’t be easy hence why I was contracted to make it automatic.

Cheers

• James October 9, 2010, 5:11 am

cannon, your calculator is magnificent, I really appreciate the fact that you shared this with us.

I have a query in regards to the Annual Prepayment box. Using my parameters, leaving the box as \$0 results in a Total cash flow of \$386,000. Populating \$5,000 in the AP box results in a Total cash flow of \$383,000. Since the mortgage will be retired in 8 – 9 years the \$40k in annual payments have only saved me \$3,000 in payments on the mortgage. Is this correct?

I see where the effect is noticable in the Investment portfolio… I guess I just thought that dropping \$5k each year on the mortgage would provide a lot more “bang”.

• cannon_fodder October 10, 2010, 1:20 am

James,

Without having all of your figures that sounds about right. You can almost think of it like investing your prepayment into something that provides a return equivalent to your mortgage rate. How much would that increase your investments over the period?

If you had a longer period to pay it off or a higher interest rate the effects would be more significant.

• Lucius February 28, 2011, 4:49 pm

Thanks for the info CF. I’m a noob when it comes to money management. I started looking into it more when I was thinking about doing a manulife one LOC on my primary home (we have a rental as well) and came across this site (when searching for SM).
We have an appointment with our first financial advisor this week. I just didn’t think it was needed but boy can I see the error of my ways. Cheers, Lucius

• 200above April 2, 2011, 6:57 pm

I have Version 2.0 and all I seem to get is #VALUE in all the calculation boxes. I have macros enabled, but still, only #VALUE in the yellow boxes?

Any ideas what I’m doing wrong?

* Disregard, I played around with it some more :) *

• margaret stec October 29, 2011, 3:05 am

Thank you for the calculator.However I can’t safe it to use it as much as I want to. It requires to disable” macros “from computer security.At least that how I understand it.

• cannon_fodder October 29, 2011, 4:01 pm

Margaret,

In order to provide the functionality I required, I employed macros. You can purchase Fraser Smiths calculator for \$30 if I remember correctly.

• gnatwest December 16, 2011, 1:11 pm

Im stuck with #value in all of the yelllow boxes and nothing showing on the chart.

Any help there would be appreciated.

• Ed Rempel January 28, 2012, 1:45 pm

Hi gnatwest,

Try enabling macros.

Ed

• M&M February 2, 2012, 1:02 am

So, I’m thinking of giving this a SM a try. I’m trying to get this calculator to work and am not sure I am looking at things correctly.

Here is the scenario: Our credit is good, we are debt free, have no children, and make good livings. Won’t include any retirement assumptions, as this is something we’d be looking at separately from retirement. My soon to be wife and I currently make about \$250,000/yr and live in AB. We are looking to purchase a home for, give or take, \$750,000. We plan to put 20% down, or \$150,000, leaving us with a mortgage of, give or take, \$600,000. I will use the following conservative assumptions: mortgage amortized over 25 years, mortgage interest of 5%, HELOC of \$100,000 (2/3 of the equity) at 5%, a flat mortgage payment of \$2000 biweekly, and an expected return of 4% on investment.

If I want to do the calculations, do I put \$100,000 as my starting HELOC and also \$100,000 as the non-registered asset? I am assuming I do. Further, if adding a periodic investment, am I to assume that investment is put onto the principal of the mortgage, then borrowed against?

Been a reader and subscriber for a while, enjoying it, and this is my first post.

• PuddleJumper February 19, 2012, 8:03 pm

I’m not sure why but almost all of my cash flow values come back negitive? My total cash flow after 25 yrs a larger negative number than my mortgage was.

• PuddleJumper February 19, 2012, 8:09 pm

Yeah never mind just realized its just my payments toward investing and mortgage….

• Noah March 8, 2012, 2:55 am

When i draw money out of my LOC to buy a T series fund, does it need to be unregistered in order to collect the dividends and use them to pay down my mortgage without being taxable?
Or can I buy it as an RRSP and still collect the dividends tax free.

If I use the dividends to pay down the mortgage, does that make the loan on the LOC non tax deductible by the amount of the dividend? (with no ROC)

What I think I would like to do is use the dividends to pay down the principle on my mortgage on top of my weekly payments,
draw out the principle paid on the mortgage from all payments (original mortgage payment, dividend payment, tax returns) towards the mortgage and draw it from the LOC to re-invest into a fund,
draw from the LOC to pay the LOC interest
and continue to repeat untill the whole mortgage loan is on the LOC.

To cash dam the process, do I just need to create an account for the dividends to be deposited into before they are put on the mortgage?
Or do I need and account to deposit into from the LOC before I buy more funds?

If I do this, will the total LOC interest payment be able to be used for my tax refund during paying down the mortgage and after the mortgage is finished being paid?

If so, I assume I could then continue to draw from the LOC to buy more investments, and continue to use the dividends now pay down the LOC until my fund is the size I am happy with, correct?

Then when I am done growing my fund, I can stop drawing to increase the fund, but still use the dividends to pay down the LOC until it is gone, correct?

I hope I made some sense there, I’m pretty wet behind the ears still.

• Ed Rempel March 9, 2012, 1:25 am

Hi Noah,

Wow, that is a lot of questions.

– Yes, the investments must be non-registered. Interest for investments in an RRSP are not deductible and any cash withdrawal from an RRSP is fully taxed as an RRSP withdrawal.
– Payments you receive from a T series fund are ROC, not dividends.
– Yes, if you take the payments and don’t pay all of them onto the investment credit line, then the each payment reduces the amount of the credit line that is deductible.
– No, cash dam is a completely different process involving borrowing to pay the costs of a business or rental property.
– No, if you are using a T series fund, then you can’t use all the interest on the credit line as a tax deduction. You need to prorate it based on the amount of payments you have received. For the credit line to remain deductible, any amounts you take from the investments must be taxable income, such as a dividends or capital gains.

Noah, this type of strategy may not be right for you. You seem to be focusing on the cash you can receive from the investments, but you need to understand that borrowing to invest is a riskier strategy. The investments will go up and down, and you need to be able to remain focused on your strategy long term.

It is more risky if you are taking cash payments from your investments, since that makes it more likely that the investments might not recover after a decline.

Before you consider a strategy like this, make sure you understand the risk.

Ed

• Noah March 9, 2012, 1:47 am

sounds like i’m going to do this through an investor
I’m guessing you’re not in BC based on the 905 area code

thanks for the quick feedback.

• Noah March 9, 2012, 3:26 am

one more question, OK a couple more:

If I invest in a non registered fund that only pays dividends and no ROC, the dividends are taxable right? So if I am paying tax on my income from my fund, I could then use that new income to pay down my mortgage or make other purchases without it affecting the tax deduct-ability of the investment loan right?

If the fund did pay ROC, then I could use the income from it to pay off the investment loan and maintain the tax deduct-ability of the loan right?
Then would I be able to use the money I get back on my tax return from the interest paid on the investment loan as a lump sum into the mortgage and still have the investment loan remain tax deductable?

If I withdraw from my HELOC into a Clearing Account, then use money in the CA to pay any remaining interest due on the HELOC and the remainder of the money in the CA into the fund, does the portion originally from the HELOC that when into the investment fund remain tax deductable? Does the money used to pay the remaining interest on the HELOC become tax deductable as well?

thank you

• newmanity March 24, 2012, 12:44 am

Thanks for the excellent calculator, cannon_fodder! It has helped me tremendously in understanding the calculations involved. I did have one question, though: how are you calculating the dividends when re-investing? When I calculate this myself I get the same values initially but they eventually decrease in comparison to yours (whatever the scenario) with the eventual effect of the money available to invest decreasing rather than increasing over time…it’s driving me nuts, and I’m assuming the error is mine!

• Ed Rempel March 24, 2012, 3:17 pm

Hi Newmanity,

Spreadsheets can be tricky, since a small mistake in logic tends to get magnified.

Without seeing a formula, I can’t tell you what is wrong, but I can guess. Do you have a mortgage amortization calculation in your spreadsheet? The tricky part of the formula is that:

1. each year you can borrow more because you are paying down more principal as your mortgage balance declines.
2. each year you need to pay more interest on the credit line for money you previously borrowed.

These 2 opposing forces tend to be roughly equal. If you are getting less to invest each year, then my first guess is that your mortgage amortization calculation does not reflect the increasing principal portion being paid down.

You should look closely at your formula for the end of the 1st year and verify the figure with a manual calculation.

I do have a question, though. You already have Cannon’s calculator. Why are you trying to recreate it?

We analyzed it indepth and verified the calculations independently and found the calculator to be very accurate.

Ed

• Ed Rempel March 24, 2012, 3:33 pm

Hi Noah,

The answer to the 3 questions in your “one more question” is yes: :)

1. If you take taxable dividends from an investment, you can use them any way you want and the interest remains deductible.

2. If you receive ROC and pay it onto the credit line, the remaining credit line is deductible, which means you can pay your refund onto your mortgage.

3. If you take money from your credit line to put into a dedicated chequing account, you can use it both to pay the interest on the credit line and to invest more. This is called “capitalizing” the interest – when the credit line pays its own interest. The interest on the interest is also deductible.

It sounds like you are trying to figure out the best strategy. Here are my comments on the 3 strategies implied by your 3 questions:

1. This is a dividend strategy that sacrifices growth to reduce your mortgage. You lose growth for 2 reasons: you ignore investments that don’t pay dividends and you pay tax on the dividends each year. We call this the “Smith Manoeuvre with Dividends”.

2. I call this strategy the “race to zero”. You take a fund with the highest possible ROC payment to pay down your credit line. Which will hit zero first? If you stick with an equity fund, it should be able to maintain itself, but if you have a balanced fund paying out 8-12%, expect a decline. This is a form of the “Smith/Snyder” strategy.

3. This strategy is actually the Smith Manoeuvre. It has much higher long term growth potential than the previous 2. The expected benefit of the simplest form of the Smith Manoeuvre over 25 years it double your current mortgage. It rises exponentially because the secret is that your investments remain untouched and compound exponentially over time. The first 2 strategies are more about reducing debt than building wealth.

Ed

• newmanity March 24, 2012, 5:33 pm

Thanks, Ed.
I’m an engineer and so I like to see how things work ;) I’m sure the spreadsheet is right. I get the more principal being paid down and the more LOC interest to pay. All my numbers are identical to cannon_fodder’s except for the dividend column which is where (and only where) a discrepancy occurs. When re-investing dividends this adds to the \$ to invest, and I’m calculating the dividends by multiplying each biweekly amount to invest by the dividend return % divided by 26. This must be too simplistic because after 5 months the numbers start to diverge…

• Ed Rempel March 24, 2012, 7:19 pm

Hi Newmanity,

Yes, I know you engineer types. One of our advisors is also an engineer.

I went through what you are doing myself, just to prove to myself that it is accurate, since we give it to clients. We have a custom version.

Your dividend calculation sounds like it should be close. Are you sure it is the dividend calculation, not the investment or mortgage balance after you apply the dividend?

Are you paying the dividend onto the mortgage and then reinvesting? Are you using the dividend amount before or after tax?

The calculator applies the dividends to the mortgage, reborrows the amount from the credit line to invest, and then pays the tax on the dividend.

Ed

• cannon_fodder March 25, 2012, 12:21 am

My initial guess is that the spreadsheet I uploaded still uses marginal tax rates from 2009 or so. If you’ve updated your own to 2012 (I believe I left those cells unprotected in that worksheet tab so you may be able to modify mine) you might find your answers align.

And if I didn’t like to see how things work for myself, then this project of mine would never have been started. I applaud anyone who is willing to make the effort to create their own model.

• newmanity March 25, 2012, 5:21 pm

Thanks again for the feedback guys!
CF: I’m using your 2009 numbers for now, so the inconsistency isn’t from different marginal tax rates.
Ed: I’m testing the sheet with only dividend re-investing right now (not applied to the mortgage first) so I’m simply adding the dividend to the “\$ to invest”. The error is definitely in the dividend calculation because all my other column values are identical to CF’s. My \$ to invest values become different than CFs only because of the dividend contribution part being off. The first few numbers in my scenario for “Cash to Mtg – Interest Costs” are (like CF’s): [400.281; 399.976; 399.674; 399.370]. My 2% dividends are [0.000; 0.308; 0.616; 0.924], leading to “\$ to invest” values of [400.281; 400.284; 400.289; 400.294]. The last dividend value for CF is 0.93 instead of my 0.92, and this is my discrepancy. I get my 0.308 by 400.281*0.02/26…but this leads to diverging numbers eventually….and this must be where my mistake lies.

• Noah March 26, 2012, 12:01 am

Thank you very much Ed!
That helps me alot, too many people are telling me different things and what you said follows with what I thought I could do.

once again, thank you.

• Eric P April 3, 2012, 8:40 pm

Hey Cannon Fodder, can I contact you regarding the spreadsheet? I have some questions regarding the possibility of licensing it. How might one go contacting you?

• cannon_fodder April 7, 2012, 12:29 pm

Eric,

Thank you.

• cannon_fodder April 7, 2012, 12:32 pm

That’s FRUGAL TRADER, haha! Silly autocorrect.

• Prime August 4, 2012, 2:11 am

I must be missing something, the spreadsheet(V2_00) doesn’t work for me. In the results box all cells except Mortgage Retired and Amortization Reduction(which doesn’t look right as well) say #VALUE. Can you guys help me out ?

All the inputs except Annual Prepayment and Cash Flow Damn are filled

• cannon_fodder August 5, 2012, 10:57 pm

prime,

did you enable excel macros?

• Prime August 6, 2012, 8:56 pm

Hi Cannon,

Yes, Macros is on.

• cannon_fodder August 7, 2012, 10:01 am

Prime,

What version of Excel are you using? I haven’t tried it with the free versions that PC’s come with these days and I suspect they don’t support some of the functions I used. There are a lot of features stripped out of the Office Starter version of Excel.

• Roger N January 6, 2013, 9:17 pm

For those plagued with #VALUE errors, note that the spreadsheet requires that your regional date format preference (located in a Windows control panel) is set to the USA convention (month/day/year). The spreadsheet fails when using other conventions, such as yyyy-mm-dd.

• #BP March 22, 2013, 12:29 pm

Cannon

I am having a lot of difficulty with the calculator as well. Anyway you can send a cheat sheet of some sort for us non excel brainiacs out there

• Jarvis N December 12, 2013, 12:34 am

Overall I think most of the Calculator is error free, however I did find an error, and it was actually identified by Cannon_Fodder near the top of the comments.

When I have an investment that has 0% investment increase and a 0% growth rate, but has dividends of 9% I should be getting an investment value that grows faster than the LOC (this is because a LOC at 4% annually is cheaper than Dividends at 9% quarterly –> Dividends quarterly = 2.25% LOC quarterly costs 1% Therefore 2.25% > 1%)

I went through the model and I identified that the problem lies within the Investment LOC or the Investment column in the Calculations Worksheet. The Investment LOC is increasing by the total mortgage payments whereas the Investment is only increasing at the PRINCIPAL + DIVIDEND – LOC INTEREST COST).

I can’t quite pin point it, but I think that the Investment account should grow at the new available LOC and not at the previous investment level. It’s very difficult to try to nail down the error, however, because I don’t understand the difference between the Investment and Investment LOC columns. They really should be one in the same.

• Matt April 3, 2014, 1:02 pm

Good morning!

Hoping this is still being monitored, but I see the last comments are over a year ago.

One quick question – what is the purpose of entering a value for “periodic investments”? Wouldn’t the override payment box account for any additional principal being paid down and thereby moved over for investment via the HELOC? Conversely, if its meant as an outside-funds periodic investment, wouldn’t that create problems with proving that all of the mortgage interest was deductible, since we’ve now commingled funds?

Thanks!
~M

• cannon_fodder April 3, 2014, 4:49 pm

Hi Matt,

That’s a great question… the idea behind the “periodic investments” was indeed for the latter scenario. It gives someone the option of also investing outside of the SM. That doesn’t mean of course you have to put them in the same account as your SM account (thus bypassing the problem of commingled funds) although it does not allow for the flexibility of having its own growth rate.

• Matt April 4, 2014, 1:25 pm

Hi cannon-fodder,

Understood. Makes sense (from an investment perspective) to see how additional non-reg dollars could pump it up even further.

Thanks for a great calculator. This takes a lot of the guessing and manual labour out of a complicated strategy.

Now…to wait for my mortgage to reach the end of this term…and waiting is the hardest part…

Cheers,
~M

• K April 14, 2014, 5:17 pm

Hi cannon-fodder,

Great spreadsheet, I’ve been using it to compare various smith maneuver options.

I’m interested to pay for some RM scenario calculations. Is that a service you still offer?

Thanks,

K

• cannon_fodder April 20, 2014, 8:45 pm

Hi K,

Why don’t you post some scenarios here because if we can accomplish the calculations with a bit of guidance and no customization, then everyone can benefit and there would be no cost.

I only charged for customized versions of the SM calculator.

• cannon_fodder April 20, 2014, 8:46 pm

Hi K,

Why don’t you post some scenarios here because if we can accomplish the calculations with a bit of guidance and no customization, then everyone can benefit and there would be no cost.

I only charged for customized versions of the SM calculator.

Thank you,
c_f

• K April 21, 2014, 11:41 pm

Great Idea, thanks Cannon.

Could you run the Rempel Maximum with the inputs below?

I would be very interested to see what happens with different dividend treatment: reinvest vs. pay down, re-borrow and invest.

House Value: 400,000
Mortgage: 200,000
Amortization: 25 years
Mortgage interest rate: 5%
Monthly payments: 1169.18

HELOC Balance: 50,000
HELOC interest rate: 6%

Investments: 50,000
Dividend Yield: 3.5 %
Growth Rate: 3.5%

-Marginal dividend tax rate: 6.46%
-Apply tax refunds, re-borrow and invest.

Thanks,

K

• Brad August 11, 2014, 4:22 pm

Also having difficulty getting macro to run. While some fields update automatically when data is entered, the Calculate button does not seem to work. In addition, it does not seem toggle when I click (does not appear to go down then up).

I notice too that if I try to change the checkboxes associated with Steps 1 – 4, it selects the field control, rather than checking on or off. Almost as if the form is not protected and therefore operational.

Have tried with Macros wide open, and with ActiveX controls also wide open, on both Mac (version 2011), and on Windows (Office 2007).

Any help greatly appreciated.

• Brad August 11, 2014, 5:59 pm

Ok, I’ve answered my own question. Downloading on a Mac (or perhaps opening first on a Mac) screws things up with the file. Apparently the ActiveX controls do not work on a Mac.