President and CEO on innovative approach that could allow borrowers to pay off their mortgage faster
The challenge of standing out in a crowded field and establishing an unmatched source of advice for clients is one that all mortgage brokers and agents in Canada are well aware of.
It’s become increasingly common for mortgage advisers to provide a service beyond a mere transactional approach, with helping clients develop a long-term approach to building wealth one of the key ways that brokers can establish repeat business.
For one Sidney, British Columbia-based financial consultant, a decades-old investment tool coined by his father represents an excellent tool for brokers to recommend to their clients in order to pay down mortgage debt faster and generate yearly tax deductions – with a recently-launched accreditation program showing them exactly how to do it.
Robinson Smith (pictured top), president and CEO of Smith Consulting Group, told Canadian Mortgage Professional that the Smith Manoeuvre has its roots in the mid-1980s, when his late father Fraser Smith pondered the question of why US-based homebuyers could deduct a significant portion of their mortgage interest on the principal residence, but Canadians could not.
“He put his head down and subsequently came up with a strategy whereby a Canadian homeowner can convert the interest on their mortgage from non-deductible interest to deductible interest,” Smith said.
The Smith Manoeuvre is aimed at addressing that problem, based around a readvanceable mortgage that allows homeowners to access their equity on a monthly basis. While some may use that line of credit to make car payments or book a vacation – what Smith calls “wealth destruction” – this strategy is predicated on using that borrowing to invest in stocks, bonds or otherwise, with the reasonable expectation of generating income.
That effectively turns mortgage interest into tax refunds, Smith said, by making the mortgage tax-deductible – something that can mean several different advantages for the borrower.
“We’re reducing our tax bill, so we can expect a tax refund at the end of the year. And with this new money that otherwise we wouldn’t have received, we’re able to prepay our mortgage and get that amount borrowed out and invested as well,” he said.
“We’re eliminating our expensive mortgage much quicker than otherwise possible and we’re generating a significant investment portfolio starting now, rather than waiting 25 years of making mortgage payments.”
At their best, Smith said that the results can take years off the amortization of a mortgage, an acceleration of the process that’s potentially worth some hundreds of thousands of dollars.
If it sounds overly complex, Smith offers an accreditation course for financial professionals, Smith Manoeuvre certified professional (SMCP), which delves into the strategy and how best to recommend it to clients.
That was preceded by a bestselling book, Master Your Mortgage for Financial Freedom, which arose out of frequent misunderstandings about the intricacies of the Smith Manoeuvre and how to correctly implement it.
Smith said that the course offered a valuable asset to brokers and agents who hoped to add an extra layer of value for clients in devising a wealth-building approach to the future.
“If these brokers become SMCP certified professionals, they have this additional strategy which is extremely attractive to Canadians – especially in these days, where there’s so much uncertainty,” he said.
“Canadians are very concerned and they’re looking for strategies to help them. It really is a benefit if a financial professional can say to their clients or prospects, ‘Here is a strategy which requires no extra cash flow from you on a monthly basis, and you can generate hundreds of thousands of dollars in additional wealth.’”
For new buyers who may have struggled to enter the market and found their income swallowed up by mortgage payments, the approach could be a particularly useful one, allowing them to develop a long-term investment strategy immediately and potentially secure a much shorter amortization on their mortgage.
Ultimately, Smith said that familiarizing themselves with the strategy would allow brokers and agents to provide a fuller, more comprehensive customer experience to their clients – and potentially offer an innovative solution to their challenges.
“With things being as they are these days, there are an increasing number of Canadians looking actively at ways that they can protect themselves,” he said.
“To be able to get out to your existing clients and offer refinancing for the strategy, or generating new business by saying ‘We’ve got a potential solution to the issues that you’re facing’ – it’s just hugely powerful for the mortgage broker.”