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.