Myth Busted: The Smith Manoeuvre is Not a Leveraging Strategy

When people first hear about The Smith Manoeuvre™, they often jump to a conclusion: “Isn’t this just leveraging? Borrowing to invest?”

It’s an understandable reaction. After all, the strategy involves converting your mortgage interest into tax-deductible investment loan interest. But here’s the truth: The Smith Manoeuvre™ is not a leveraging strategy—and understanding the difference is critical.

Let’s break it down.

Leveraging vs The Smith Manoeuvre™

Leveraging, in its traditional sense, means taking on new debt—often against your home equity or through another type of loan—to invest. This increases your total debt load. For example, if you owe $300,000 on your mortgage and you take out another $100,000 to invest, you now owe $400,000. That’s leveraging.

The Smith Manoeuvre™, on the other hand, does not increase your total debt. Instead, it converts non-deductible mortgage debt into deductible investment debt by re-using principal payments you’re already making. You’re not adding more debt—you’re restructuring the same amount of debt into a more efficient form.

Meet Emily before The Smith Manoeuvre™

To make this real, let’s look at Emily.

Some homeowners structure their borrowing as an interest-only line of credit instead of a traditional amortizing loan. With an interest-only loan, you only ever pay the interest, not the principal. That means the balance never goes down.

In Emily’s case, she has a $300,000 interest-only line of credit secured against her home. Each month she makes her minimum interest payment, and at the end of the month her debt is still exactly $300,000. Beginning of the next month? Still $300,000. Year after year, her balance doesn’t budge.

Why does this matter? Because it highlights that not all debt repayment structures are created equal. An interest-only setup like Emily’s costs less per month than a traditional amortizing mortgage (since you’re not paying principal), but it never reduces the balance owed.

This sets the stage for understanding why The Smith Manoeuvre™ is different.

Meet Emily after The Smith Manoeuvre™

Now let’s imagine Emily instead has a traditional amortizing mortgage of $300,000. Each month, her payment is split between interest and principal. With every payment, a small portion of the principal gets paid down.

Here’s where The Smith Manoeuvre™ comes in: with a readvanceable mortgage, Emily’s lender automatically makes the amount of principal she’s paid available to borrow again through a home equity line of credit (HELOC). Emily then invests that reborrowed principal into assets like stocks, ETFs, or mutual funds.

At the end of the month, Emily still owes $300,000—just like in her interest-only example.

But here’s the difference: a portion of her debt has been converted into an investment loan, which means the interest is tax-deductible. Over time, her investments grow, her deductions increase, and her wealth builds—all without her debt ever climbing above the original $300,000.

The key difference

The key distinction is this: with leveraging, you add more debt. With The Smith Manoeuvre™, you don’t.

• Emily’s total debt remains $300,000 whether she’s paying interest-only, following a traditional amortizing mortgage, or executing The Smith Manoeuvre™.

• The difference is in the structure. One version keeps the debt stagnant (interest-only), one version slowly reduces it (traditional mortgage), and one version actively transforms it into a wealth-building tool (Smith Manoeuvre).

The bottom line

The myth that The Smith Manoeuvre™ is just leveraging misses the mark.

Leveraging increases your debt load. The Smith Manoeuvre™ does not. Instead, it takes the debt you already have and puts it to work—transforming non-deductible interest into deductible interest and building wealth at the same time.

It’s not about borrowing more. It’s about borrowing smarter.

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