The 65% Rule Changed: What the 2023 HELOC Cap Means for Your Smith Manoeuvre™ Exit
A real estate lawyer in Oakville invoiced $895 to discharge a HELOC last week. The client asked why the payoff statement showed a bigger final balance than the outstanding loan. The lawyer explained that under the 2023 (effective October/December 2023 for federally regulated lenders) rule change, the revolving portion was capped at 65% of the home's value at closing. The client's home had appreciated since closing, so the unused capacity, $34,000 in this case, could no longer be re-advanced even though the property was now worth more.
That's the thing about the Smith Manoeuvre™ exit most people miss: you're not closing a loan. You're closing a readvanceable product, and the math changed in October or December 2023 (for federally regulated lenders).
What the 65% cap actually limits
Before October 31 or December 31, 2023 (depending on the lender's fiscal year), lenders set their own policies on how much of your home's value could sit in the revolving HELOC portion of a readvanceable mortgage. Some banks went to 80%. The new rule, effective October 31 or December 31, 2023 (depending on the lender's fiscal year), capped it at 65% of the property's value at the time of closing, not 65% of what your home is worth when you go to discharge the product years later.
This matters for Smith Manoeuvre™ exits because the strategy relies on converting your mortgage principal into tax-deductible HELOC debt over time. As you pay down the amortizing mortgage, you reborrow through the HELOC to invest. The 65% cap limits how far that can run before you hit the ceiling.
If you opened your readvanceable mortgage after October 31 or December 31, 2023 (for federally regulated lenders), the revolving credit portion maxes out at 65% of the purchase price or appraised value when the mortgage closed. If your home appreciated since then, that gain doesn't increase your HELOC limit. The cap stays anchored to closing day.
Where the ceiling shows up first
Most people running the Smith Manoeuvre™ don't think about the cap until they go to discharge. They assume the HELOC grows with the property value. It doesn't.
Say you bought at $600,000 in 2023 with 20% down. The mortgage was $480,000. Your HELOC limit was set at $390,000 (65% of $600,000). You've been readvancing religiously for three years. The amortizing portion is now $420,000. The HELOC sits at $390,000. You're at the cap.
If the home is now worth $720,000, you'd expect a readvanceable product to let you access 65% of that, or $468,000. Under the old framing, maybe. Under the 2023 rule (effective October/December 2023 for federally regulated lenders), you're stuck at the original $390,000 ceiling (the 2026 figure may differ).
When you go to discharge, you're paying to close a product that has $810,000 total debt ($420,000 mortgage + $390,000 HELOC), but the HELOC side can't expand further. If you were planning to keep readvancing into retirement and then refinance the whole structure into one loan later, the cap changes that plan. You hit the limit earlier than the old math suggested.
Three things to confirm before discharge
Pull your mortgage commitment and find the exact HELOC limit in writing. It's in the schedule. Don't rely on what the lender told you verbally in 2023 or what an online calculator estimates now. The number that governs discharge is the number in the contract.
Ask your lender for a payoff statement 60 days out, not 10 days out. Lender discharge fees in Canada typically run $200-$400; total costs including legal and registration run $325-$1,300 depending on the lender and province. Some banks charge per-account fees. If you're discharging both the mortgage and HELOC portions, you may be paying twice. The early statement gives you time to move money if needed.
Know whether you're discharging to refinance or discharging to close. If you're refinancing into a new readvanceable product, the new product will also carry the 65% cap, reset to the new closing value. If the property appreciated, that reset can matter. If you're discharging to close and move to a conventional mortgage or pay off entirely, the cap is irrelevant going forward, but you need to know the final balance includes any capitalized interest or fees the lender added to the HELOC in the trailing period.
The cap didn't break the Smith Manoeuvre™. It just shortened the runway for people who assumed the HELOC would grow with equity indefinitely.
A real estate lawyer in Oakville invoiced $895 to discharge a HELOC last week. The client asked why the payoff statement showed a bigger final balance than the outstanding loan. The lawyer explained that under the 2023 (effective October/December 2023 for federally regulated lenders) rule change, the revolving portion was capped at 65% of the home's value at closing. The client's home had appreciated since closing, so the unused capacity, $34,000 in this case, could no longer be re-advanced even though the property was now worth more.
That's the thing about the Smith Manoeuvre™ exit most people miss: you're not closing a loan. You're closing a readvanceable product, and the math changed in October or December 2023 (for federally regulated lenders).
What the 65% cap actually limits
Before October 31 or December 31, 2023 (depending on the lender's fiscal year), lenders set their own policies on how much of your home's value could sit in the revolving HELOC portion of a readvanceable mortgage. Some banks went to 80%. The new rule, effective October 31 or December 31, 2023 (depending on the lender's fiscal year), capped it at 65% of the property's value at the time of closing, not 65% of what your home is worth when you go to discharge the product years later.
This matters for Smith Manoeuvre™ exits because the strategy relies on converting your mortgage principal into tax-deductible HELOC debt over time. As you pay down the amortizing mortgage, you reborrow through the HELOC to invest. The 65% cap limits how far that can run before you hit the ceiling.
If you opened your readvanceable mortgage after October 31 or December 31, 2023 (for federally regulated lenders), the revolving credit portion maxes out at 65% of the purchase price or appraised value when the mortgage closed. If your home appreciated since then, that gain doesn't increase your HELOC limit. The cap stays anchored to closing day.
Where the ceiling shows up first
Most people running the Smith Manoeuvre™ don't think about the cap until they go to discharge. They assume the HELOC grows with the property value. It doesn't.
Say you bought at $600,000 in 2023 with 20% down. The mortgage was $480,000. Your HELOC limit was set at $390,000 (65% of $600,000). You've been readvancing religiously for three years. The amortizing portion is now $420,000. The HELOC sits at $390,000. You're at the cap.
If the home is now worth $720,000, you'd expect a readvanceable product to let you access 65% of that, or $468,000. Under the old framing, maybe. Under the 2023 rule (effective October/December 2023 for federally regulated lenders), you're stuck at the original $390,000 ceiling (the 2026 figure may differ).
When you go to discharge, you're paying to close a product that has $810,000 total debt ($420,000 mortgage + $390,000 HELOC), but the HELOC side can't expand further. If you were planning to keep readvancing into retirement and then refinance the whole structure into one loan later, the cap changes that plan. You hit the limit earlier than the old math suggested.
Three things to confirm before discharge
Pull your mortgage commitment and find the exact HELOC limit in writing. It's in the schedule. Don't rely on what the lender told you verbally in 2023 or what an online calculator estimates now. The number that governs discharge is the number in the contract.
Ask your lender for a payoff statement 60 days out, not 10 days out. Lender discharge fees in Canada typically run $200-$400; total costs including legal and registration run $325-$1,300 depending on the lender and province. Some banks charge per-account fees. If you're discharging both the mortgage and HELOC portions, you may be paying twice. The early statement gives you time to move money if needed.
Know whether you're discharging to refinance or discharging to close. If you're refinancing into a new readvanceable product, the new product will also carry the 65% cap, reset to the new closing value. If the property appreciated, that reset can matter. If you're discharging to close and move to a conventional mortgage or pay off entirely, the cap is irrelevant going forward, but you need to know the final balance includes any capitalized interest or fees the lender added to the HELOC in the trailing period.
The cap didn't break the Smith Manoeuvre™. It just shortened the runway for people who assumed the HELOC would grow with equity indefinitely.
Sources
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