Hey fellow mustachians!
Quick summary of my situation: Canadian, 28 years old, just bought a 4-plex. 16K in debt, but it can be covered any time with my current TFSA investments. I'm a teacher, currently without a contract, but unless Godzilla attacks, I'll be full time in a year tops.
I recently heard about investment loans. In my current situation, I could get a 75K loan (no initial money required from me) that I would need to invest in mutual funds. It seems like a promising thing, but I want to really weigh the pros and cons.
- I want to start with a 50K loan.
- No margin call.
- Interest rate is variable
- There is a penalty if you drop out early, but it decreases every year. No penalty after 6 years.
- I can choose my mutual funds, provided they are with a company on a list they provided (wide choice, no vanguard). I plan to go full passive here, something like 25% Canada, 25% world and 50% US.
- Every month, I receive an amount of money based on the annual returns, and must pay a part of the capital and interests (calculated over 20 years). If the returns are high, I get extra pocket money (not much, but free money is free money). If the returns are low, I must pay the difference.
- The plan here is long term. I don't plan on touching the money for a few years at least.
For perspective, here's a worst case scenario with someone getting a 100K loan right before the 2008 crash.
Seems like the risks are manageable. Thoughts?