Your home is more valuable than you think
Every homeowner remembers the day they signed on the dotted line. Yes, there was the joy of buying a first home, but also likely some trepidation about the many years of payments ahead.
“Many Canadians consider their home their biggest lifetime investment, and sometimes they concentrate on paying down their mortgage before they think of building other parts of their investment portfolio,” says Jack Courtney, Assistant Vice-President, Advanced Financial Planning Support with Investors Group.
Unlock the value in your home*
Thanks to a national boom in housing prices, the value of your home has been steadily rising. You’ve created a healthy equity stake in your home, but you’d like to find a way to put this equity to work for you. The only question is, how?
The answer, may be borrowing to invest, which is often called “leveraged borrowing.” Registered Retirement Savings Plan (RRSP) loans have been popular with Canadians for years, and leveraged investment loans have long been a mainstay for the non-registered investor. However, there is another way for you to accelerate your investment plan called Home Equity Diversification, which allow s you to borrow against the equity you have built up in your home.
Home Equity Diversification
“One of the ways Home Equity Diversification unlocks the value in your home is that it allows you to build an investment portfolio without committing extra cash flow – your overall mortgage and investment loan payments can stay the same as your current mortgage payment,” notes Courtney. “Also, if you invest in non-registered holdings, the interest on the amount you borrow for an investment may be considered tax deductible by Canada Revenue Agency in certain circumstances, which could make the overall investment more viable.”
Is it right for you?
While there are certain benefits to Home Equity Diversification, Courtney cautions that this approach is not for everyone. You need to be comfortable with the risks associated with short-term market volatility, the potentially longer time it takes to pay off your mortgage, and the interest and repayment costs associated with leveraged borrowing. Since this is a longer-term strategy, you should be prepared to hold the investment for a minimum of six years, or ideally ten years, to help reduce the effects of short-term fluctuations.
Your Investors Group Consultant can help you assess the potential benefits of this strategy and how and if it fits into your overall financial plan.
*The strategies represented in this article may involve the use of borrowing to invest and are based on the assumption that the interest costs are tax deductible for Federal income tax purposes. Borrowing to invest is a long-term investment strategy and is not for everyone. Gains from positive fluctuations in the value of investments will be magnified, but losses from negative fluctuations in the value of investments will also be magnified.
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This article, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
© Copyright 2007 Investors Group. All rights reserved. Do not reproduce without the express written consent of Investors Group
