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Methods of Borrowing to Invest TaxTips.ca
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Financial Planning -> Stocks, Bonds etc. -> Borrowing to Invest -> Methods of Borrowing to Invest

Methods of Borrowing to Invest

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 happen.

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 low.

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.

Next Borrow to Invest Articles:

Setting up the brokerage account

Buying the stocks and ETFs

What to do with the dividends

Selling the stocks and ETFs

TaxTips.ca Resources

Risk as it Relates to Investing - Re possible % drop in market value

Tax Tip:  Be cautious, don't overextend yourself, invest in good quality stocks and ETFs.

Revised: October 15, 2021

 

 

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