There has been much concern over the viability of the Smith Manoeuvre or a leveraged investment strategy during this recent bear market.  The main concerns are due to a couple of reasons, first, sinking equities, second, the increase of variable rates due to the credit crunch. In addition to this, one of the more popular readvanceable mortgages, The Firstline Matrix Mortgage, has stopped offering the product altogether (source: Canadian Mortgage Trends).

The truth of the matter is that leveraged investing is risky.  The investment account is facing the relatively risky equity market along with building interest on the capital that supports it.  The opportunity for the account to grow at an accelerated rate is great, but so is the opportunity for values to drop.

With current market conditions, it’s a gut check to see who can really take the leveraged investing heat.  With the possibility of HELOC (home equity line of credit) rates, which are traditionally at prime, to increase above prime, it will make this strategy even more expensive.  However, with a slow economy, the prime lending rates will most likely decrease even further, which will hopefully even out any increases.  With that said, The Smith Manoeuvre strategy is still a valid option, just with one less readvanceable mortgage available along with the potential with higher HELOC rates.  For those of you looking for alternative readvanceable mortgages, here are some of my other favorites.

What am I doing with my leveraged portfolio during this correction?  Even with the extreme fear in the streets, I have my eye on the big picture and my long investment time line.  Therefore, I’m sticking to the plan, watching my favorite dividend paying stocks and waiting to deploy some cash when they appear cheap.  I’ve said this before, and I’ll say it again, these market corrections are temporary and should be viewed as an opporunity to buy cheap equities for the long term.  It may take a while (even years) for the markets to bounce back, but if you buy cheap, you’ll take full advantage of the upcoming recovery.

For those of you with leveraged portfolios at this time, have you made any changes?

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My leveraged portfolio consists of about a $1000 (pre-correction) so I’m not really sweating anything at this point. Only thing is that I wish I had more capital available to deploy.

Not to highjack the thread, but any thoughts on whether Manulife One (or other all-in-one products) is a more viable option for Smith Maneuvre since its still offered at prime (vs other banks now charging a premium on prime)?

My lev portfolio hasn’t done well since the value has gone down quite a bit, which does suck. On an up note however the cash flow will be positive this year since the borrowing costs have gone down since last year (even with the recent increases). The cash flow was the main motivation for doing it so that’s a good thing!!

You are right – it’s risky business!!!

Now that you mention it, I believe I heard it was just the variable rate mortgages and not the helocs that are now above prime. not sure about the helocs at all.

I can confirm that TD has definitely raised their HELOC rate to prime + 1%. The discretion of the salesperson has also been removed, so this is now a minimum that they can offer to new customers.

So why can’t you do the borrowing at a fixed rate? Why does it have to be a floating rate on the mortgage?

Thankfully, I recently renewed / moved my mortgage so the HELOC portion is still at prime.

My leveraged portfolio got battered in the last week. My portfolio isn’t entirely leveraged. I try to keep the portfolio value at 133% of the loan, and put all dividends onto the loan.

My bigger concern is long term capital preservation. Interest rates can only stay this low for so long. When they go up, all these dividend yielding stocks will go furthur down in value.

DGI – you can certainly use a fixed rate loan. The problem is that you can’t do interest-only which is preferable (to me at least).

Chuck – I don’t think HELOCs work that way – they can change the rate on you.

“The Firstline Matrix Mortgage, has stopped offering the product altogether “

So there’s certainty and stability for you! The discount mortgage company ceases to remain in the market at the first sign of trouble. This behaviour is one which makes me consider the stability offered by the big banks.

The Reverend: Not all the other banks are charging a premium on prime rate, so for new mortgage holders, the M1 is only behind by the monthly fee. Of course for those who bought in at a prime minus mortgage some months ago, they still see the savings of the discount every month.


David – Firstline is owned by CIBC so they should be somewhat stable. That is if you consider CIBC to be stable.. :)

Point taken though – this move will hurt their promotional efforts quite a bit.

Leverage is certainly risky business. On the bright side, I don’t hear many comments on how great the SM is anymore (especially from advisors).

RBC has kept their “Homeline” at Prime 4.50% and I actually just noticed that my variable rate mortgage went from 4.25% to 4.00% today.
In my humble opinion RBC is well capitalized and extremely stable.
I’m still waiting to scoop up some more Canadian Bank Stocks (Probably TD, BNS, and RY) as I raise cash. I will likely add to existing positon by November 1. I also like Sun Life for the long term and TRP for stability at $35.00 CDN or less.
Disclosure: Long all above mentioned stocks.

TSX down anotehr 450 pts today. Time for your daily gut-check.

Have had several conversations with one of the firstline underwriters. Rumor is they have suspended the Matrix product and all variable products due to the inability of their computer systems to recognize a prime + rate. The system was implemented in 1992, when a prime + loc was not expected. The good news is, it sounds like they are trying to fix the problem and may re-implement the products soon. Although, the rates will obviously be higher.

My caveat is that this is just what we have been told, whether or not the problem is fixable who knows. But at least it gives hope.

hmmm…paying down debt still seems like a good plan…never goes out of style. I know it’s not fancy.

Went to my bank (BMO) today, and they are offering Prime + 1% on HELOC – no discounting. Wanted to setup their Readiline mortgage & HELOC, but it appears in doing so I’ll lose my sweet prime minus 0.85% on the mortgage portion in exchange for prime + 1% on the new product. This will probably more than wipe out any advantage in bundling. I’ll probably go straight HELOC and take advantage of what I feel is an unprecedented buying opportunity.

@Four Pillars:
The interest rate on my line of credit portion of my readvanceable mortgage clearly states in the legally binding agreement that its at the banks prime rate. After seeing your post I reread the agreement and double checked with my advisor.

Banks can change their prime, but they cannot arbitratrily change the negotiated rate from prime to prime + x% once our contract was signed.

Chuck – thanks – I’m going to have to look at my HELOC (with Firstline no less) and see what their agreement is.


Canadian Capitalist said: “Leverage is certainly risky business. On the bright side, I don’t hear many comments on how great the SM is anymore (especially from advisors).”

Big _______ grin.

I’m thinking to invest in a few bottles of wine, and a comfortable fireplace!


I was +14% earlier this year, Now I think I am -25% ;-)
Still didn’t make any changes but it is starting to sting a little ;-)

I am still a firm believe of leveraging, but it is definitely not for everybody!

actually, I think it’s the perfect timing to start a SM. The problem is that people can’t stand fluctuation regardless if they leverage or not. Actually, they can’t even stand index fluctuation as well.

I have people screaming because they are losing 5% in the market right now while all markets went down double digits in the last week only.

Those people will eventually sell, secure their position and then whine when the market goes up and they are not part of the party.

Imagine someone taking an investment loan now. Stats since 1925 show that the market always goes up as strong as it went down…

Let’s see what happens next!

Fully agree with the Financial Blogger. Actually, I’m trying to refinance my mortgage to get more money for the HELOC. It could be a perfect time to buy now, but my concern is that in November – December people will start to dump “losers” (this days almost every stock is a loser) for taxation purposes. It might trigger another swing down… May be it is better to wait until January.

Hi Acorn,

I wouldn’t wait until January just because of possible tax loss selling later this year.

Selling losers for tax losses in November and December would be only one factor of many affecting the markets during that period. Usually, most companies that are in favour are generally priced about right, which means that for every tax loss seller, there is probably another buyer (or the seller buys it in a different account).

This is often not true of value stocks that are not currently in favour, however.

In general, however, the market is very low now and that is likely a much bigger factor through November to December than tax loss selling.

The most similar recent large sudden decline like this was in 1987 when there was a drop of almost 30% from August to October. In that year, both November and December were up on the S&P500 and with the TSX November was a good gain and December was a minor loss.


This year (after about a year of investigating!) I started the SM with RBC Homeline (LOC/Prime rate lowered to 4.25%).

Just like everyone else on the planet I got hammered in the past weeks and will probably continue to loose %’s, but I am still positive about my choice. Like FT, I’m in it for the long-term (10+ years) so even if it does take 5 years for markets to normalize and start showing gains it’s okay with me. Within the SM portfolio stock price isn’t nearly as important as dividend stability/growth (until near the end of the life of the mortgage, I would guess).

One thing I did research is the point at which my SM would stall and produce a +/-0% result. In my situation, my LOC interest rate would have to jack up to around 13% (with dividends and stock price staying the same). So in my case I do have a bit of “maveouvre”-ability (sorry! had to do it!).

On a side note, markets like this really reveal just how much risk/volatility tolerance one has as an investor. You can learn a lot more about yourself in a 3-week meltdown than a 20-year bull run!

Re: Financial Blogger

It’s true about people fearing and panicking in markets like this. It doesn’t make my stomach feel any better when I look at my portfolio these days but, as you said, I still believe in the power of leveraging.

Case in point, during the Great Depression, Templeton borrowed/leveraged $10,000 (approx. $120,000 today) and bought a basket of 104 different stocks. He made crazy gains on all but 4 of them, and wound up a gazillionaire.

There are opportunities in today’s “crashed” market — businesses selling for LESS than the cash they have on hand! — and leveraging to take advantage of such situations has proven to be a wise move in the past. The tricky part is, with credit markets all but seized, is trying to get the leverage in the first place!

Actually, if you are not setup to leverage now, chances are that you bank won’t lend you much money to do it… They are kind of “on their guards” ;-)

Hi FB,

We are not finding much difficulty in getting financing. Rates are higher, in that discounts are less, and some lending rules are being followed more literally, but otherwise, we are not finding much difficulty getting financing.


Hi Scott,

If you are focusing on dividend stability/growth, you may find that dividends in Canada have been at very high levels for the last several years due to the commodities bubble/speculation. The banks have also been over-earning, with huge profits on new issues for and loans to commodity companies and appear to have been priced for perfection.

It is probably prudent to assume lower dividend growth and probably lower dividends going forward.


I agree with most of the coments above. The Smith Manoeuvre and leveraged investing is risky, but it is still an excellent way to build up your nest egg for the future. The key is that it must be a long term strategy. If you are in long term, these declines are just bumps on the road (although this one is quite a big bump).

These down times are the most important times to keep investing. FB is right that this would be a great time to start the Smith Manoeuvre.


Hi All,

There are rumours of another 1/2% prime rate cut next week. Those variable mortgage have worked out very well! All those people with mortgages at prime -.85% would be down to 2.9% with another rate cut!

Interest rates and the discretion below prime are changing every day, so it is a challenge to keep up with who has the best deal. We think that variable mortgages below prime will be back in a few months or possibly a bit longer. If you don’t have a variable mortgage below prime now, staying open or short term will allow you to switch back to discounted variable mortgages when they are available again.


Being the kind of person who always wants to maximize returns (but not necessarily chase returns), I’m banging my head at the rates right now because I have a fixed rate mortgage.

Initially I DID have a variable (Prime – 0.5%) but locked in @ 4.5% when rates started to rise. I’m still ahead in the long term because of the many months rates were held at 6%. I know historically variable is the better mortgage, we’ll see what the bank scenery is like when I’m up for renewal.

Short term, the market crash is “bad” for my mortgage rate but good for my SM rate.

My non-SM mortgage is due Dec. 1 and I’m looking at switching to an SM mortgage. Is anyone still lending at prime?

I’m leaning towards Canadian Tire…it’s 4.75% for the variable LOC and 5.14% fixed on a one-year term for the mortgage. Not a very good rate, but CT covers the appraisal and legal fees, and one could switch lenders a year down the trail when things get better…

Any advice would be appreciated…NB is still at prime but they don’t cover the legal fees. Manulife One may be at prime but I can’t swallow the monthly fee…

Thank you in advance for your help.


brendan, not sure what youre mortgage balance is, but if you’re deciding between manulife and CT all-in-ones, the 25bps might outweigh the monthly fee.

at 200k, 25bps is about $40 per month

granted, no guarantees that there will always be a 25 bp spread between the two.

A quick comment on mortgage rates and whether or not mortgage payers are getting a “good” or “bad” rate: go Google some mortgage rate info and you’ll quickly discover that the historical average lays at around the 10% mark.

Complaining that your 5% rate is “not a very good rate” is ludicrous — it’s a 50% discount from a 60+ year average! Take it and run because it could very well be higher than the average sooner than you think.

Hi Scott,

Where are you finding 10%+ mortgage rates in history? Looking at variable an 1-year rates, I believe we only made it to 10% perhaps 3 years of the last 60 during a short period in the early 80’s. Other than that, rates have always been far lower.

The average we have seen in the last 10 years is between 4-5%.

Up until the last month, short term mortgage rates were about the average of the last 10 years. Now they are going lower.


Hi Brendan,

Mortgage rates and discounts are changing every day lately, but we still have access to several at prime. The last time we looked at Canadian Tire, their mortgage did not allow for a sub-account, so it is not usable for the Smith Manoeuvre.

We are tracking the best rates daily. If you want a referral to the best SM mortgage, we have a free referral service on this blog if you email us with answers to 10 questions.


Hi Ed,

I think the CT will work, but not in the way the product was intended to be used. With the account you get a variable LOC, as well as optional fixed portions. So the only way to make it work for the SM, as I understand it, is to use the variable LOC for your investments, and create fixed portions for your mortgage, your car loan, renovation loan, etc. The fixed portions require you to pay interest+principal monthly, while the variable portion will allow you to pay interest only (and will auto-capitalize the interest too).

The way the account is marketed, all of your deposits and withdrawals are supposed to go through the variable portion. If you want to use this account for the SM, however, you necessarily have to do your day-to-day banking elsewhere since you can’t mix everything in the variable account.

This diagram helped me understand:

Variable LOC (use for investing)
Fixed portion 001 (your mortgage)
Fixed portion 002 (your car payment)
Fixed portion 003 (renovations)

As you pay down the fixed portions, you get more room in the variable portion. CT has a sample statement on the left nav bar of this page:

I would much rather have the LOC and my mortgage at prime, but I can’t find a lender at the present time who will offer this and pay the appraisal+legal costs. (CT does cover these costs.) This business down south has everyone panicked.

I actually filled out your questionnaire, Ed, and had been working with a BMO contact of yours. Today she informed me BMO doesn’t even offer the three-year open variable for the ReadiLine anymore. The best they can do is prime+1 on a five-year closed.


If anyone knows any BMO reps still offering the ReadiLine at prime on a three-year open variable, please drop me a line: brendan at letterwhiz dot com.

I’d be more than happy to speak to other lenders offering prime as well. (Provided they cover legal+appraisal costs, or offer some kind of value that makes up for having to pay a portion of these costs.)

All the best,



I looked up the data a LONG time ago so I’m not too sure where I found it. Specifically, I was referring to a 5-yr fixed. Here’s a crappy little chart (how do you link?) to hopefully give a bit of an idea:

THe majority of the chart lies above 9%. Roughly eye-balling/ball-parking, there’s almost a 30-year span between 1967-1995 where rates dipped below 9% ONCE and went as high as 21%. I’m not a rate expert or historian so maybe I’m way off. Am I?

A semi-off-topic post:

I’ve got a funny mortgage story (bet ya didn’t think there were any!). Few years ago one of my friends bought a house at the end of a cul-de-sac, beside a park. His neighbour across the street had bought his house in the 80’s and had locked in the total amortization period of his whole mortgage at 18%! When he finally paid it off, the city wanted to re-claim more park land, so they bought his house from him. Very shortly after his house was bulldozed! Ha! Wow, was that guy ever pi$$ed! “I spent all that money and time paying off that house and they just rip it down!”.

Unfortunately my friend sold his house too or he could have been living across from a very scenic park view.

Wonder if someone can offer their 2 cents?
I’ve a fixed mortgage at 5.69%, 4 yrs remaining
I’ve a LOC at prime. It’s the Firstline Matrix product.
Should I take funds out of my LOC to pay down the fixed rate mortgage?
If I do, the entire mortgage will be paid off before renewal and converted over to the LOC at prime.
Would this make sense? Seems like prime is going to stay low for the next while right?

This possibility has been suggested on the Manulife One Mortgage entry, Look for answers, comments, suggestions and ideas there.


Just to add to this discussion with another data point:

I was able to obtain a prime + 1% secured LOC against my existing investments with BMO.

Is this a good time to start SM, I haven’t even secured the LOC yet and have about 2.5 yrs left on current mortgage at 4.55 fixed. Any ideas?


Given your current situation I’d definitely hold off for now. While there are many attractive dividend yields out there, there’s still a great deal of downside risk in equities in the short to medium term. In this economic climate, a sure thing is a good thing(ergo your 4.55 fixed mortgage)! SM is a great long term strategy under normal circumstances. Given the current state of the world economy, fundamentals can not be trusted in the near term. Most of the wisest investors are currently sitting on the side lines. Better to risk losing some gains than catch a falling knife (with borrowed money from an LOC)
Good luck to you!

With hindsight, we can see that starting the Smith Manoeuvre after a market crash is usually the best time.There was “Irrational Pessimism” ( ) at the end of 2008 and early 2009, so anyone that started then has probably done very well.

The Smith Manoeuvre is a risky strategy because it involves borrowing to invest, so it must be a long term strategy. If you do it long term, your chance of success is high, but you will go through market crashes. There are usually a couple of major market crashes every decade, but the market always recovers if you stay invested.

To be a successful investor, you cannot view market crashes as fearful times to avoid being invested. You need to see market crashes as buying opportunities with stocks on sale.

We have found that faith in the stock market long term is the key to making the Smith Manoeuvre successful.