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Investment Lending

There are times when borrowing to invest, (also known as leveraging), can be a useful strategy to help you grow your non-registered investment portfolio and help you build wealth. This strategy lets appropriate investors borrow money to take advantage of the long-term growth potential of investments.

A borrowing to invest strategy, or leveraging strategy, offers 2 main benefits:

  • It allows you to invest a larger sum of money at one time rather than making smaller contributions over an extended period of time. This allows the investments more time to grow over the investment period and take advantage of long-term compounding returns.
  • It can provide tax-savings benefits because the interest you pay on a loan used to purchase non-registered investment funds may be tax deductible1.

The strategy is not without risks, so make sure you understand that the potential negative impacts can include: 

  • In negative markets, the effects of market volatility and losses are amplified. A leveraged purchase will involve greater risk than a purchase using cash alone.
  • Interest rates can change, making the payments higher and reducing the potential benefits.
  • Borrowers are obligated to repay the loan and applicable interest regardless of the performance of the investment.
  • The lender may terminate the loan, or choose not to renew.

If you use this strategy, it’s important to have the available cash flow to handle regular payments and be able to accommodate changing market conditions and interest rates. Cash flow for payments typically doesn’t come from investment income on the investment for which you borrowed — you need to be capable of paying the loan from other sources such as employment income or other investments. 

Your financial security advisor and investment representative can help explain the benefits and risk of borrowing to invest and help you determine if this strategy is right for you. Seek the assistance of a tax professional to determine tax implications specific to your situation.

Want to learn more about borrowing to invest?

Contact a financial security advisor and investment representative to find out if borrowing to invest is a strategy that works for you. Or, if you’re already a Solutions Banking client,
call 1-866-888-1379 to find out more.

1 At this time, the Canada Revenue Agency (CRA) indicates that investments such as mutual fund trusts, corporations and segregated fund policies are eligible investments for interest deductibility purposes. CRA can change its position at any time, so interest deductibility cannot be guaranteed. For Quebec income tax purposes investment expenses (which includes interest on loans that were used to purchase non-registered investments) are only, at this time, deductible up to the actual amount of taxable investment income earned during a particular year. Investment expenses in excess of the taxable investment income in a year may be carried back 3 years or carried forward indefinitely to offset taxable investment income.

All tax laws subject to change.

While borrowing to invest can be a powerful means to build wealth, the risks involved make it a strategy that is not suitable for everyone. Your financial security advisor and investment representative and your tax advisor can help you determine if borrowing to invest is a strategy that is right for you.

Leveraging magnifies gains or losses. It is important that you understand a leveraged purchase may involve a greater risk than a purchase using cash resources only. To what extent a leveraged purchase involves undue risk is a determination to be made on an individual basis by each investor.

A description of the key features of segregated fund policies can be found in the information folder and important information about mutual funds can be found in the funds’ simplified prospectus. Please read these documents carefully before investing.
Mutual funds are not guaranteed. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund and segregated fund investments. Their values change frequently and past performance may not be repeated.

Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change. This information is general in nature, and is intended for educational purposes only.

Solutions Banking products and services are provided by National Bank of Canada. Solutions Banking loans are subject to additional terms and conditions as specified in the credit application you complete. All loan features are subject to change.

All lending products are subject to credit approval by National Bank of Canada.
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