Before you look at the subject line and jump to conclusions, please read my specific situation.
I am Canadian for tax purposes.
I have a significant amount of student loans (from medical school). I didn't want to hold off investing for years while I paid off my debt (especially given low interest rates), so I have adopted a strategy of using part of my excess money to pay off my student loans and part of it for investing. At this point, I have a line of credit at 2.70% (prime minus 0.25%), which is a private bank loan, so it's not tax deductible. I also have a non-registered investment account. The value of this investment account is currently greater than the line of credit.
I am thinking of selling some of my investments and "paying off" my line of credit and then re-borrowing that money and re-buying the investments. I can do this without any significant capital gains/losses. The interest on my loan will then become tax-deductible since borrowing to invest is tax deductible in Canada. The tax deduction will be at my marginal tax rate (currently ~40%, soon to be 54% as my income will rise within a couple years). My effective interest rate would then be 1.2-1.6% at the current prime rate.
Technically, I am "borrowing to invest", which I know has all sorts of negative connotations of high risk, but as far as I can tell my risk profile hasn't really changed except that I can now deduct the interest.
My risks as I understand them are:
- I continue to have debt, which is currently very low cost (although interest rates are likely to rise).
- There's always the risk of market corrections/crashes (and the current market isn't particularly cheap).
Can anyone see any other major problems with this that I am missing?