Very helpful intel here. I have been hearing a lot about the Manulife One product as any deposits (paycheque) or balances (i.e. cash holdings) offset the mortgage balance (calculated daily). I believe there was a change where the maximum LTV for HELOCs in Canada is now capped at 65%(?). Wondering if this changes your perspective on the Manulife One product (assuming the rates offered are also competitive) and using it to implement the SM?

Thanks!

Thanks for all your information on the topic. I have recently started the SM through RBC Homeline Plan and my first payment is coming up, which I’ve set up to be withdrawn from a newly created separate savings account used only for SM purposes. As I’m sure you are aware, RBC does NOT, for some reason, tell you in advance how much will be withdrawn from the savings account. The calculation itself is quite simple, I’ll owe about $247 for this month, to be withdrawn at the end of each month. My questions were about maintaining tax deductibility.

1) Given RBC does not provide a precise number for owing, am I okay (in the eyes of the CRA) to move the rough amount and say, +5% (let’s just say $260 this month) more to make sure the payment doesn’t bounce, from the HELOC into the SM savings account a few days prior to the payment date to make the payment?

2) Say the payment does end up being exactly $247. Do I then need to move the remaining $13 back into the HELOC to maintain deductibility? Or will CRA not care about a negligible amount like that?

3) As far as timing of the transfer from HELOC to SM savings account goes, am I okay to just move $260 each month (or whatever the interest calculator tells me the number will be, + ~5%) at the start of the month, or is this something that *has* to be done closer to the actual date that the amount will be withdrawn from the SM savings account?

Thanks so much in advance. I realize these questions may be seriously overthinking things but RBC’s lack of precision is really bothering me

Hi John,

The problem you mentioned is an issue with how your specific Scotia STEP is setup and options your bank person selected. We have a great contact at Scotia and lots of clients wiht a Scotia STEP that readvances properly and works well with the Smith Manoeuvre.

Scotia is the one bank where is seems the Scotia STEP works differently for every client. All the other banks, it is consistent.

We have a great mortgage contact at Scotia and every mortgage she setups there works great. She explained that Scotia has a bunch of options that have to be selected for the STEP to work properly.

Tell your mortgage person about it. If you can’t get it working, send me a message on the Contact Form on my blog and we can put you in contact with our Scotia mortgage person. She has been able to fix it for other clients.

Ed

This is pretty frustrating in my case since I only put 20% down on my home. From what I understand, that means I can’t readvance monthly and DCA as planned. Instead, I’d be limited to a single lump sum, and I’d need to account for the interest costs over the next three years in advance.

Has anyone else experienced this with Scotia?
Was I just dealing with a rep who wasn’t fully familiar with the product, or is this actually their current policy?

Hi Mike,

You can give your brokerage a void cheque from your TD HELOC and ask them to do an automatic monthly/bi-weekly investment amount. Using the void cheque works with TD and BMO, but not with most of the other banks.

We have clients at every bank and learned by trial and error. We found that asking the bank was completely unreliable. In fact, the answer we received from all 5 banks ended up being wrong! 🙂

Ed

You mention that the TD Flexline allows you to pay directly to your brokerage, am I reading that correctly? I currently have that product with an associated HELOC that has been increasing as I pay down mortgage. I am looking to start to transfer some of those HELOC funds over via “pay bills”, but only see options for the term portion of the mortgage or my chequing account. Any clarifications on how this transfer is to occur?

Hi Oleg,

Yes, you can. BMO and TD allow invesitng or paying bills directly from the credit line. Just give them a void cheque.

The other banks mostly don’t allow it. The bank employees rarely know if you can do this. We learned about from experience which banks work. We found it quite funny that the employees were wrong in all 5 banks! Employess from the 2 that worked said it didn’t work, and employees fromt the 3 that don’t work all said it did. Weird. 🙂

If you are doing both the Smith Manoeuvre and the Cash Dam, you would want to use your main readvancing credit line for the Smith Manoeuvre. You might not have credit available in your Cash Dam credit line.

I hope you find that helpful, Oleg.

Ed

Hi Matt,

Essentially all the banks require you to make the interst payment from your bank account. They don’t allow capitalizing automatically.

The one exception is the National Bank All-in-One, but they have the disadvantage of a monthly fee.

The interest capitalization is usually only one manual transaction you do each month. Just go online and do one transfer. It only takes a couple minutes.

Once you have done it a couple times, you can see it is easy. It is a bit easier if you main bank account is at the same bank as your mortgage.

Ed