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Before making a major financial decision you
should consult a qualified professional.
Methods of Borrowing to Invest
Canadian Tax and
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With both of the following methods of borrowing, you can
borrow slowly over time as you use the money to invest, principal repayments are
not necessary, and you can usually get a relatively low interest rate.
Line of Credit Mortgage
This may be the best
way to borrow to invest. If your house is paid off, you can
probably get a line of credit mortgage at the bank prime interest
rate. You should arrange a line of credit for more than you plan
to invest. This gives you a cushion should any unforeseen event
Make sure you understand the terms of the loan - could they require
repayment if the market value of your investments drops
significantly? Make sure you could withstand up to at least a
50% drop in market value, so you don't have to sell when prices are
Don't overextend yourself, and don't do this if it would keep you
awake at night!
Margin Brokerage Account
With a margin brokerage
account, you must have some money or stocks in a non-registered
account with the brokerage before you can buy stocks on margin.
Some stocks have a higher loan value than others, and some have no
loan value. Make sure you understand what the loan value of a
particular stock is before you buy it on margin.
If there is a crash in the stock markets, you may get a margin call,
and have to either sell stocks or transfer money into the account.
For this reason, it is important to ensure that you have enough margin
available to withstand up to at least a 50% drop in your market value.
This helps to avoid a margin call, which results in selling the stocks
when they are at a low.