What is TDMP & the Smith Manoeuvre?
When dealing with debt, it is crucial to convert bad debt to good debt. Good debt is tax deductible where as bad debt is not. The Smith Manoeuvre converts your principle residence mortgage into a tax deductible debt.
The goal is to pay off your mortgage faster while enjoying tax deductions and instead of being just mortgage free, finishing your mortgage with a large investment fund for retirement.
In order to access the Smith Manoeuvre, you must have access to a re-advanceable mortgage. There are a number of lenders who offer these mortgages but be aware, some are Smith Manoeuvre friendly whereas others make it very difficult to use this strategy. Please consult us to discuss the list of lenders working with the Smith Manoeuvre.
However, instead of trying to conduct the Smith Manoeuvre on your own, I highly suggest taking a look at TDMP (Tax Deductable Mortgage Plan). For a small monthly fee, TDMP essentially manages everything for you and monitors your progress.
TDMP partners you up with a mortgage broker (me) and a financial advisor. You can request your own TDMP benefits report through our office. This strategy is not for everyone but we do recommend that everyone take a look to see if they will qualify. In our experience we have found that there are various different circumstances that can lead to a tax deductible mortgage plan and you may already be in a position to accomplish that and not know it. We invite you to contact our office and take the TDMP test. Following this we set up a re-advanceable mortgage and sell your non-RRSP assets (stocks, non-registered mutual funds, etc). We use the proceeds to pay down your mortgage. You can readvance the proceeds from a LOC (line of credit) portion of the re-advanceable mortgage and repurchase those investments. This has now turned the interest from that portion of the mortgage into a tax deduction.
The next step is to pay your mortgage as you typically would. With each principle payment you re-advance that amount into the LOC and invest this money into qualifying investments. The interest portion of the LOC is a tax deduction that will award you an annual tax return. Use this to pay down your mortgage further and readvance the funds from your LOC.
Rinse and repeat until your mortgage is paid off. What is the difference? Your mortgage should theoretically be paid off twice as fast and you should have a very healthy invested wealth portfolio to play with.
This concept is certainly a brilliant idea but of course like most investment strategies, has risks. Always consult an experienced financial adviser and accountant familiar with the Smith Manoeuvre prior to proceeding.
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Remember to Own Your Life and have a nice day!