Whether you are considering, or implementing The Smith Manoeuvre you need to be aware that readvancing mortgages at many Canadian banks* are changing in 2023. This could alter how The Smith Manoeuvre is implemented with these lenders.
What are the Changes Impacting The Smith Manoeuvre in 2023
On June 28th, 2022 OSFI or the Office of the Superintendent of Financial Institutions announced that they would require lenders to have “all lending above the 65 percent LTV limit (…) will be both amortizing and non-readvanceable”.
This means that most major banks readvanceable mortgages will change.
Expected Outcomes of Changes Effecting The Smith Manoeuvre
There are two expected outcomes.
- Lenders will offer a readvancing mortgage component up to 65% of the value of a home. Any additional borrowing will be on a separate component that does not readvance (paying it off will not increase your Home Equity Line of Credit (HELOC) limit.
- Lenders will adjust their internal calculations so that when $1 of mortgage debt is paid off only a portion will be applied to increase the HELOC.
These changes will reduce the benefits of The Smith Manoeuvre but borrowers will need to be more aware of the mortgage product they have. It is expected that these changes will increase the experience and understanding a lending professional needs to effectively help a borrower navigate The Smith Manoeuvre. In addition these changes will increase the interdependence of professionals (Financial Advisors, Chartered Professional Accountants and Mortgage Brokers) as they assist Candian’s with The Smith Manoeuvre.
Simply put, Canadian’s who work with a team of experienced professionals working in cohesion will implement a safer and more effective version of The Smith Manoeuvre.
When asked Robinson Smith, author of “Master Your Mortgage For Financial Freedom – The Smith Manoeuvre” and creator of The Smith Manoeuvre Certified Professional (SMCP) program had to say “The Smith Manoeuvre has been in continuous operation by thousands of Canadian homeowners for close to forty years. In that time we have seen many changes within the mortgage, investment and taxation environments, and while some of these changes impacted The Smith Manoeuvre more than others, we have never failed to adapt to any new environment and are pleased to say that the strategy remains very powerful and valuable for Canadian homeowners…and certainly more important than ever in these times of high rates and high inflation.”
One of the most common pitfalls of The Smith Manoeuvre is borrowers implementing the strategy incorrectly or failing to adapt to changes in the areas of lending, taxes and investments. The most effective way to minimize and avoid these challenges is to work with The Smith Manoeuvre Certified Professionals who provide interconnected guidance and ongoing support.
If you need any help or planning with The Smith Manoeuvre let me know and I will do my best to help.
*It is important to note that some Canadian lenders readvancable mortgages will not be impacted by these rule changes and there will be no changes to how The Smith Manoeuvre works at these lenders.
