Smith maneuver questions
I'm soon to buy a home and I've been reading a bit about the Smith Maneuver and I have a couple of questions. Firstly though, from what I understand you basically use your home equity (max 65%) to obtain a line of credit to invest in stocks. This is therefore tax deductible, which gives you a refund. You can then use this refund to pay down your mortgage. Mortgage repayment is even faster if you go for divvy stocks and use the dividends to pay down your mortgage.
So here are my questions:
- as you pay down the mortgage you unlock the equity and use it to buy more stocks with the LOC - once your mortgage is paid off then you have essentially a LOC worth 65% of your home you need to pay back. What then? Throw your divvies at that? If you then spend the next 10-15 years paying that off, is your nest egg really growing?
- if you are using your dividends to pay down the mortgage and then possibly the HELOC, how does your portfolio grow? Capital appreciation only?
- presumably over the long hall your portfolio is worth more than the debt on the HELOC due to cap appreciation. But what if something happens and it isn't? Is this the biggest risk to the strat?
Thanks for the insight guys!
So here are my questions:
- as you pay down the mortgage you unlock the equity and use it to buy more stocks with the LOC - once your mortgage is paid off then you have essentially a LOC worth 65% of your home you need to pay back. What then? Throw your divvies at that? If you then spend the next 10-15 years paying that off, is your nest egg really growing?
- if you are using your dividends to pay down the mortgage and then possibly the HELOC, how does your portfolio grow? Capital appreciation only?
- presumably over the long hall your portfolio is worth more than the debt on the HELOC due to cap appreciation. But what if something happens and it isn't? Is this the biggest risk to the strat?
Thanks for the insight guys!