The Smith Manoeuvre actually protects your home ownership by increasing your financial security significantly.
Your debt level need not be increased. Your non-deductible mortgage is reduced while your investment loan and portfolio grows.
When your mortgage is fully converted, you can expect that the value of your portfolio will exceed the amount of the investment loan, which you can then pay off. Or leave in place to continue to generate tax refunds every year for the rest of your life. Your choice.
You can build a safe portfolio using a good financial planner and sound investment practices. Risk is spread out over a long period of time, making unpredictable market conditions manageable.
The higher risk is not investing at all, or not investing soon enough, to meet the needs of retirement and periods of insecurity. This is why an increasing number of seniors are ending up house rich, but cash poor, with little or no retirement income on which to live. The large increase in the number of seniors forced to take a Reverse Mortgage such as CHIP, (the Canadian Home Income Plan) is proof of that.
A mortgage loan is the wrong kind of debt. The interest, paid for with after-tax income, over a long amortization period, severely hampers your financial future.
If your home is your sole investment, you have put all your eggs in one basket. House values may drop as baby-boomers retire, causing a reduction in demand. Diversifying your investments, and investing earlier in life, is a safer course of action.
You ‘risked’ your house as soon as you got a mortgage. Before you ever heard of The Smith Manoeuvre, you and your bank had an understanding that if you didn’t make payments on the money they lent you, they could take your house. Nothing changes in that regard – if you owe someone money and you don’t pay them, then they have a right to the asset you offered as collateral. But you are making your payments now and you will continue to make them after you implement the strategy. Thousands of people have used or are currently using The Smith Manoeuvre. If you’re going to have a mortgage debt, why not turn it into a “good debt” that generates tax refunds and increases your investment portfolio, just like they did?