Maximize potential with an
investment loan

What is an investment loan?

An ideal option to boost the create wealth faster than a traditional investment strategy.

An investment loan is an ideal option to boost the potential growth of your investments. By leveraging borrowed money, you can significantly increase your investment capacity, thereby maximizing your potential returns while maintaining liquidity for other projects. This type of loan can be part of a tax-advantaged financial strategy since the loan interest is often tax-deductible.

Video Source: B2B Bank

How investment loans work?

Leveraged investing via investment loans is quite a simple concept:

  • You borrow money
  • You invest the money
  • You pay interest on the loan
  • When you sell the investment, you repay the loan and keep any investment growth

An investment loan has the potential to generate greater returns for you than a traditional investment strategy. Here’s why:

  • Accelerates savings through a larger initial upfront investment and compound returns.
  • Compound returns on an investment means that returns are calculated not only on the initial investment, but also on the accumulated growth from year-to-year.
  • Investment loan interest has the potential to be tax-deductible, but not in all circumstances; when it is deductible, it can effectively reduce the overall cost of an investment lending strategy.

Benefits of an investment loan

Investment loans are particularly suitable for investors who prefer not to use their own money and may lack substantial liquid funds for investment, provided they have some level of risk tolerance.

  • Investment gains have the potential to reach financial goals faster.
  • Allows you to take advantage of market upturns.
  • Maximizes your investments while maintaining access to your liquidity.
  • A lump sum investment starts compounding right away, rather than waiting to build your savings with a traditional strategy.
  • There are potential opportunities to reduce overall cost of an investment lending strategy through tax deductions.
  • Provides access to segregated fund benefits.

It’s especially beneficial for long-term investors (minimum 10 years) with non-registered assets, offering the advantage of reducing taxable income through tax-deductible loan interest.

Here’s how you can fast forward your savings

With a traditional savings plan, only the investment you make in the first year will have the full 20 years to grow. Each subsequent year, the amount you contribute will have less time to grow. This means that the amount you contribute in year 2 will only grow for 19 years, in year 3 for 18 years, and so forth, resulting in a lost opportunity for compound returns compared to a larger lump sum investment.

Let’s say you have $7,700 to invest each year for 20 years. With a traditional savings plan at a 15.6% rate of return, it would take 7 years to grow your savings to $100,000. After 20 years, your investment would be worth $ $979,229.44.

However, if you made an interest only annual payment of $7,700 toward a $100,000 investment loan, the entire loan amount could benefit for the full 20 years, with your investment worth $1,716,170.77 (after repaying the $100,000 loan), which is $736,941.33 more than the traditional savings plan. This is how an investment loan could fast forward your savings.

invest with own money vs investment loan

*For illustrative purposes only. Actual rates and amounts may differ. The illustration is a hypothetical example and is not intended to project or predict actual results.

Investment loan interest rates

The rates shown are determined based on the Royal Bank of Canada’s prime rate (PR).

The interest rate is: PR+0.75%

*7.7% as of July 9, 2024 

Interest rates are provided for information purposes only and are subject to change at any time without notice.

Ai Financial services on investment loan

If you lack sufficient funds, we can help you secure investment loans.

While people often think of debt as something to be avoided, an investment loan is a strategic form of debt designed to improve your financial position, providing money when you need it, for as long as you need it.

  • Loans from Canadian Tier 1 or Tier 2 banks or Credit Unions (e.g., B2B Bank, Manulife Bank, iA Trust, National Bank, DUCA).
  • Loans must be invested in Segregated Funds with Canadian Insurance Companies (e.g., Manulife, Canada Life, iA, Sun Life, Equitable Life).
  • Investment loans have a 20-year term but can be canceled anytime.
  • Interest-only payments are required; the current rate is Prime + 0.75% (7.95% as of June 3, 2024).
       o Example: For a $100,000 loan, the monthly interest payment is $673.97.
  • Client may qualified to withdraw 10% of Total Market Value to cover the interest.
  • With an average annual return of 21.6%, borrowing to invest can be highly profitable.

Loans providers

Loan providers

Additional information

Resources

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