Author Topic: Newbie to leveraging - what do I need to know?  (Read 11033 times)

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Newbie to leveraging - what do I need to know?
« on: May 13, 2013, 11:48:19 PM »
I'm 28, in good financial shape, and considering borrowing a chunk of money on a HELOC to invest in a taxable account in order to accelerate my plans for financial independence.

Wife and I are making about $7k/month and saving half of it. Our assets consist $155k in various tax-deferred accounts and $75k of equity in a condo. I am considering borrowing $25k against the equity in our condo and investing in dividend-producing stocks in a taxable account. I can probably get the loan at about 3.5%.

Canadian tax implications: all the interest on this loan would be tax-deductible (so I would pay more like 2.3%). I will pay essentially no tax (6% marginal rate) on the received dividends thanks to the BC dividend tax credit.

This seems like a no-brainer. Obviously I'm taking on some additional volatility risk but we have stable jobs, the interest cost is minimal, and we're only borrowing ~1/6 the value of our current portfolio.

What are some other things I should think about or consider before pulling the trigger on this? I haven't chosen stocks yet but they will be mostly Canadian blue-chips (for tax reasons).
« Last Edit: May 14, 2013, 12:07:18 AM by Cecil »

Reepekg

  • Bristles
  • ***
  • Posts: 253
  • Age: 39
Re: Newbie to leveraging - what do I need to know?
« Reply #1 on: May 13, 2013, 11:59:32 PM »
I would love to hear how this goes. I'm the same age and situation as you, and theoretically know it should work to diversify across time, but I don't have the risk tolerance to try what you're planning.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #2 on: May 14, 2013, 12:11:12 AM »
Your signature is very appropriate for this thread. :)

marty998

  • Walrus Stache
  • *******
  • Posts: 7372
  • Location: Sydney, Oz
Re: Newbie to leveraging - what do I need to know?
« Reply #3 on: May 14, 2013, 02:06:36 AM »
Any sort of leveraging requires much more of your time to monitor, and you cannot ever just "set and forget". You need to be very decisive when needed.

I wasn't and I burned myself badly a few years ago.

My advice is to do it but watch it like a hawk. With a HELOC you won't get margin called, but you should treat the consequences of a falling portfolio in the same manner.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #4 on: May 14, 2013, 06:44:18 AM »
I already spend too much of my time monitoring my finances. I make up new spreadsheets regularly for fun, it's kind of a hobby.

What things should I be watching specifically?

mpbaker22

  • Handlebar Stache
  • *****
  • Posts: 1095
Re: Newbie to leveraging - what do I need to know?
« Reply #5 on: May 14, 2013, 07:25:16 AM »
Any sort of leveraging requires much more of your time to monitor, and you cannot ever just "set and forget". You need to be very decisive when needed.

I wasn't and I burned myself badly a few years ago.

My advice is to do it but watch it like a hawk. With a HELOC you won't get margin called, but you should treat the consequences of a falling portfolio in the same manner.

If they're only borrowing 1/6th the value of their portfolio, they shouldn't have a problem with this unless they lose 83% of their portfolio.  If that happens, there's probably a lot more to worry about.
As long as you plan to pay back the HELOC with your income, but you have the portfolio to cover it as well, you have a double safety margin, and you really shouldn't worry about it.  You could lose, but most the time you'll come out ahead.

Joet

  • Guest
Re: Newbie to leveraging - what do I need to know?
« Reply #6 on: May 14, 2013, 08:55:32 AM »
These types of plans are normally fostered at/around market tops and by inexperienced investors. I will add this to my list of bearish indicators. See also the credit card balance transfer market arbitrage, etc all.

Basically you are saying... Why not 120% equities (nay, dividend chasing hand picked stocks), indeed why not 150%?
« Last Edit: May 14, 2013, 08:57:11 AM by Joet »

Reepekg

  • Bristles
  • ***
  • Posts: 253
  • Age: 39
Re: Newbie to leveraging - what do I need to know?
« Reply #7 on: May 14, 2013, 09:46:47 AM »
These types of plans are normally fostered at/around market tops and by inexperienced investors.

Market tops when the market hasn't gained much since 2000? Also, this has only been brought forward as a risk reduction strategy in the last couple years:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1687272

At 28, why not 150%? I assume the OP knows enough not to speculate hand-picking on margin, but instead index with leverage when he is young and has relatively little capital and gradually deleverage down to lower-than-traditional equity levels as he ages.
« Last Edit: May 14, 2013, 09:48:40 AM by Reepekg »

Spork

  • Walrus Stache
  • *******
  • Posts: 5742
    • Spork In The Eye
Re: Newbie to leveraging - what do I need to know?
« Reply #8 on: May 14, 2013, 09:59:26 AM »

 With a HELOC you won't get margin called, but you should treat the consequences of a falling portfolio in the same manner.

Are you sure about this?  My recollection is that there were a whole bunch of "margin calls" on US HELOCs around 2008 when a slew of lenders reduced/froze/rescinded a bunch of HELOCs.  Maybe this is different in Canada.

I'd say the risk is a big unexpected shift: job loss, HELOC call, economy slump, etc.  I'm not saying it's an awful risk, but I think it should be considered.  You may very well have enough to cover and it's fine.  ...just keep it in mind.

Joet

  • Guest
Re: Newbie to leveraging - what do I need to know?
« Reply #9 on: May 14, 2013, 10:54:59 AM »
These types of plans are normally fostered at/around market tops and by inexperienced investors.

Market tops when the market hasn't gained much since 2000? Also, this has only been brought forward as a risk reduction strategy in the last couple years:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1687272

Hasn't gained much since 2000? S&P 500 was 1455 and change Jan 1,2000. Unless you want to goalpost-manage and pick the prior market top to compare against I suppose? This also ignores dividends/reinvestment/etc.

I wasn't aware that leverage was a new concept, either. It is pretty obvious that if one assumes equities grow in value faster than the cost of margin/debt that it is a winning strategy. I question the mathematics/methodology behind that paper as well, looks like simplistic use of means, properly estimating the risk of such a scenario requires use of the expected volatility of equity markets, and as always, backtesting as an academic method is questionable at best. It is rather simple to demonstrate that an investor employing such a strategy in say 1999/2000 or 2007-ish would be in serious trouble. Were those events singularities? I doubt it. Does it work for some people? Sure. Does it lower the risk profile? I suppose it depends on how we quantify risk, and our expectations for equity performance moving forward. If you assume that equities generally march upwards relentlessly, with minor bouts of spastic 10-20% corrections, perhaps a steadfast investor full of human capital and ultimate employability or small business success(es) could perform this fantastically. I'm not saying it can't work, I'm saying suggesting the risk profile is lowered is a bit specious, especially when you consider human factors---not just the dreaded margin call. For instance, say you are 150-200% leveraged, market takes a little 2008-circa dip [~50% off], your home value is now also ~50% off, and you lost your job. Ouch. But hey, whatever, move into a cardboard box and start hunting raccoons or something.
Not so dire is lets say you are 150-200% leveraged, and the market dips 20% [really, just a correction, we seem to almost have these every other year]. Depending on your timing of the investments, you are underwater on your equity and servicing that debt. No big deal right? We're in it for the long haul. What if all of a sudden macro factors change and your HELOC isnt 3.5% any more, rather it bumps to 8%? I've read my HELOC paperwork before and most are LIBOR adjusted after an intro period. Maybe yours is super special and is fixed for life [that sounds more like a home equity loan though, not a HELOC]. Etc. Am I nancy worrypants? I guess. Hope it works for you though, honestly.
« Last Edit: May 14, 2013, 11:09:29 AM by Joet »

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #10 on: May 14, 2013, 12:28:54 PM »
These types of plans are normally fostered at/around market tops and by inexperienced investors. I will add this to my list of bearish indicators. See also the credit card balance transfer market arbitrage, etc all.

Basically you are saying... Why not 120% equities (nay, dividend chasing hand picked stocks), indeed why not 150%?

I will admit upfront to not being very experienced. I have only been investing for about 4 years and almost entirely in ETFs. A bit in individual stocks and writing covered calls.

But I still don't understand why you think this is a bad idea. I've already got $165k of home equity debt and a nearly equivalent amount in the stock market. I'm considering increasing that amount to $190k.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #11 on: May 14, 2013, 12:31:01 PM »
At 28, why not 150%? I assume the OP knows enough not to speculate hand-picking on margin, but instead index with leverage when he is young and has relatively little capital and gradually deleverage down to lower-than-traditional equity levels as he ages.

Correct. I'm not considering hand-picking stocks. I want an index that will provide some long-term capital growth, with enough dividends to cover my loan interest (which is required for the loan interest to be tax-deductible).

Spork

  • Walrus Stache
  • *******
  • Posts: 5742
    • Spork In The Eye
Re: Newbie to leveraging - what do I need to know?
« Reply #12 on: May 14, 2013, 12:37:32 PM »
These types of plans are normally fostered at/around market tops and by inexperienced investors. I will add this to my list of bearish indicators. See also the credit card balance transfer market arbitrage, etc all.

Basically you are saying... Why not 120% equities (nay, dividend chasing hand picked stocks), indeed why not 150%?

I will admit upfront to not being very experienced. I have only been investing for about 4 years and almost entirely in ETFs. A bit in individual stocks and writing covered calls.

But I still don't understand why you think this is a bad idea. I've already got $165k of home equity debt and a nearly equivalent amount in the stock market. I'm considering increasing that amount to $190k.

It's a mindset, mostly.  There are tons of people that do really well leveraging.  Lucky?  Probably some of them.  Doubtful that it's all of them.  Some of them know what they're doing.  Some of them will get bitten the first time the economy hiccups.

I don't bet with other people's money.  Maybe I am overly risk averse.   Maybe it's because I am oh-my-god-close to FIRE.  Maybe it's because I've got a paid off house and really comfortable with not paying.

Don't let us scare you into not doing it.... just have a good plan.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9922
  • Registered member
Re: Newbie to leveraging - what do I need to know?
« Reply #13 on: May 14, 2013, 12:38:52 PM »
Where bigchrisb when you need him?  He is the most leveraged person I've seen around the fora.

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1381
Re: Newbie to leveraging - what do I need to know?
« Reply #14 on: May 14, 2013, 01:06:36 PM »
This is a poor time to leverage yourself.  When you add leverage to a portfolio of risky securities via money you personally borrow yourself, you are taking a lot of risk.  You should be absolutely sure that you are going to be compensated for it.  That means that you should only be willing to even consider this in times of market distress.  That is not what we are in at the moment.

If you want to take more risk and leverage yoursef, do it in a way that caps your potential loss.  Buy some long dated (2015 or 2016 if you can get it) call options on index ETFs, leveraged equity CEfs, or something similar where you are not personally liable for the boorowed money.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #15 on: May 14, 2013, 01:39:40 PM »
This is a poor time to leverage yourself.  When you add leverage to a portfolio of risky securities via money you personally borrow yourself, you are taking a lot of risk.  You should be absolutely sure that you are going to be compensated for it.  That means that you should only be willing to even consider this in times of market distress.  That is not what we are in at the moment.

If it's a bad idea to take a home equity loan to buy stocks, then it should be a good idea to sell some equities and use the proceeds to pay down my mortgage. Or is there a reason the two options aren't equivalent?

The way I'm looking at it is, I have 230k of net worth, split 67% stocks and 33% real estate equity. I want to shift the balance point to 80%/20%.

mpbaker22

  • Handlebar Stache
  • *****
  • Posts: 1095
Re: Newbie to leveraging - what do I need to know?
« Reply #16 on: May 14, 2013, 01:52:07 PM »
This is a poor time to leverage yourself.  When you add leverage to a portfolio of risky securities via money you personally borrow yourself, you are taking a lot of risk.  You should be absolutely sure that you are going to be compensated for it.  That means that you should only be willing to even consider this in times of market distress.  That is not what we are in at the moment.

If it's a bad idea to take a home equity loan to buy stocks, then it should be a good idea to sell some equities and use the proceeds to pay down my mortgage. Or is there a reason the two options aren't equivalent?

The way I'm looking at it is, I have 230k of net worth, split 67% stocks and 33% real estate equity. I want to shift the balance point to 80%/20%.

Like I said before, as long as you can make the monthly payment with your job salary, and you aren't at high risk of losing your job, I think you ought to go for it.

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1381
Re: Newbie to leveraging - what do I need to know?
« Reply #17 on: May 14, 2013, 01:57:52 PM »
This is a poor time to leverage yourself.  When you add leverage to a portfolio of risky securities via money you personally borrow yourself, you are taking a lot of risk.  You should be absolutely sure that you are going to be compensated for it.  That means that you should only be willing to even consider this in times of market distress.  That is not what we are in at the moment.

If it's a bad idea to take a home equity loan to buy stocks, then it should be a good idea to sell some equities and use the proceeds to pay down my mortgage. Or is there a reason the two options aren't equivalent?

The way I'm looking at it is, I have 230k of net worth, split 67% stocks and 33% real estate equity. I want to shift the balance point to 80%/20%.

But you don't have 67/33%.  You have gross exposure to real estate of whatever your property is worth, gross exposure to equities of whatever they are worth and you have borrowed X dollars to help finance it.  You should be looking at your gross exposures as a percentage of net worth, not your net exposures.

And yes, at some point it is a good idea to sell appreciated assets and kill off the debt.

Joet

  • Guest
Re: Newbie to leveraging - what do I need to know?
« Reply #18 on: May 14, 2013, 01:58:45 PM »
what's the relevance of the equity in your home vs your investment/AA ? There's a reason we [generally speaking] avoid looking at the primary residence.
Unless you arent going to need a place to live in the future [or will rent instead?] what difference does it make?

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1237
Re: Newbie to leveraging - what do I need to know?
« Reply #19 on: May 14, 2013, 08:49:39 PM »
Where bigchrisb when you need him?  He is the most leveraged person I've seen around the fora.

If talking about leverage on stocks, agree 110% (including a bit of leverage:).  However, I'd argue that compared to a lot of home buyers, I'm not very leveraged at all - many would view someone buying a house with 30%-50% down as being very conservative.  Either way, its debt, secured against an asset, which means that if you default, the lender has the option to take your securing asset.  Stock on margin is just lower risk for the lender, as its less politically damaging to chase people on negative equity.

Yes, I've used a lot of leverage, and continue to do so.  There is a substantial yield/interest rate spread between Australian stock dividends and margin loan rates.  I've had a wild ride, including margin calls, lots of paper losses, and over-enthusiastic buying.  At the moment, with stocks at a high point, things are looking very good - since the start of 2008, my annualized pre-tax return on my capital is currently 18.5%.  However, over that period, that number has fluctuated between -30% and +20% - a very wild ride.  I'm pretty risk tolerant, but I've certainly lost sleep at night at times.

Overall, I still believe that leverage is a useful strategy - I view it as selling my risk tolerance - I take the risk premium of a wild stock market ride, and I give the lender a fixed rate of return.

That said, I'd be cautious about leveraging up too much right now.  It will spark a market timing debate, but I'm currently trying to de-leverage a bit, with stocks at their current valuations.  To date this has been by paying new money into debt reduction, but in the last couple of days I even sold some stock (about $20k of Australian bank shares).  I'm doing this, because:
a) I'm being naughty, and trying to time the market, and
b) My stock portfolio is large enough that it spins off enough dividends for my current lifestyle.  That changes my priority from growth to preservation.  Leverage is great for growth, but can bite you on the volatility/preservation side, particularly in the event of a margin call.

For disclosure, my stocks/leverage by account are:
Super: $135k, no debt
Holding company: $87k, no debt
IB: $190k, $97k of debt (51% gearing)
ANZ: $572k, $400k of debt (70% gearing, the one that worries me most about margin calls)

Best of luck with it!

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9922
  • Registered member
Re: Newbie to leveraging - what do I need to know?
« Reply #20 on: May 14, 2013, 10:55:16 PM »
The spread in the US is pretty good too right now - Interactive brokers is still around 1.6% I think.

Instead of deleveraging, how about hedging?  Buy some more non-correlated assets a la the PP?

What gearing ratio do you recommend for a beginner?  50%? 

I am personally considering levering up by an equivalent of three to six months salary, since I can reliably depend on that money (and of course have backup sources if needed).  For my first experience, I'd pay back the margin loan as my paychecks come in until it's paid off and I re-evaluate how I feel about leverage.

Reepekg

  • Bristles
  • ***
  • Posts: 253
  • Age: 39
Re: Newbie to leveraging - what do I need to know?
« Reply #21 on: May 14, 2013, 11:12:55 PM »
For disclosure, my stocks/leverage by account are:
Super: $135k, no debt
Holding company: $87k, no debt
IB: $190k, $97k of debt (51% gearing)
ANZ: $572k, $400k of debt (70% gearing, the one that worries me most about margin calls)

How are you able to use 70% gearing profitably and borrow that money in the first place? I understand Cecil was using a HELOC, so I imagine his interest rates are pretty low. To borrow money on margin from my broker, the base rate is 7.75%. Probably the biggest reason I haven't tried this is I am very unlikely to beat 7.75% returns reliably in the market.

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1237
Re: Newbie to leveraging - what do I need to know?
« Reply #22 on: May 14, 2013, 11:44:29 PM »
Re 70% gearing - I think margin rules vary from place to place.  The allowed LVR through my ANZ account with this miz of securities is about 76%, and another 5% buffer before they instigate a margin call.  This account has my highest interest rate, at 6.8%, and once the fixed rate ends, I'll be looking at transferring these to my IB account (currently about 4% for AUD and 1.6-1.1% for USD margin). 

The portion of the portfolio with ANZ isn't cash flow positive. My gross dividend from this portfolio is just shy of $29,000, while the interest cost is $34,400/year. The IB account is cash flow positive ($7,500 in dividends vs ~$1,600 in interest).  So the shares in my personal name are roughly neutrally geared.  The highest yielding ones are in the holding company ($6,000/year), to get these out of my own tax return.

Regarding what leverage ratio to start with - well, what you feel comfortable with.  For some people, that's no leverage, and that is a fair and reasonable answer.   Agree that having a couple of outs is a good idea - Like your plan, my salary is fairly high, and many times through my experiment I've relied on top-ups from income to avoid forced liquidation.

Maybe have a think about how you feel about stock market losses.  They will happen from time to time.  If you beat yourself up about them without leverage, then leverage certainly isn't for you.  However, if you are gleefully buying more when the sky is falling, maybe it is.

tooqk4u22

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Newbie to leveraging - what do I need to know?
« Reply #23 on: May 15, 2013, 08:49:16 AM »
This thread is really more of another version of "keep or pay off the mortgage" topic.  He is not thinking about margin accounts and instead wants to use a HELOC (which will have rate risk).  On that basis, anybody who has a mortgage AND investments is using leverage.  As such, I would rather have a fixed rate so I am not taking on rate risk along with market risk. 

smedleyb

  • Bristles
  • ***
  • Posts: 434
Re: Newbie to leveraging - what do I need to know?
« Reply #24 on: May 15, 2013, 09:35:04 AM »
This thread is really more of another version of "keep or pay off the mortgage" topic.  He is not thinking about margin accounts and instead wants to use a HELOC (which will have rate risk).  On that basis, anybody who has a mortgage AND investments is using leverage.  As such, I would rather have a fixed rate so I am not taking on rate risk along with market risk.

Seen in this (proper) context, roughly 60-70% of the investing public is using some kind of "margin" to play the markets.

There's other ways to ramp up the beta on a portfolio without taking on margin debt.  2X and 3X ETFs can give you the same level of exposure without the concomitant possibility of losing the borrowed funds.   Just a thought.

Self-employed-swami

  • Handlebar Stache
  • *****
  • Posts: 1090
  • Location: Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #25 on: May 15, 2013, 09:42:48 AM »
I see you are in Canada, and I am doing exactly what you describe.  I don't recommend this company (their customer service sucks, and they are disorganized) but their website explains the idea pretty well:

http://www.tdmp.com/index.php/1howitworks

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #26 on: May 15, 2013, 10:22:08 AM »
This thread is really more of another version of "keep or pay off the mortgage" topic.  He is not thinking about margin accounts and instead wants to use a HELOC (which will have rate risk).  On that basis, anybody who has a mortgage AND investments is using leverage.  As such, I would rather have a fixed rate so I am not taking on rate risk along with market risk.

This is how I'm thinking about it. I'm essentially doing the opposite of paying down my mortgage early - expanding it to free up more funds for investing.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #27 on: May 15, 2013, 10:25:13 AM »
There's other ways to ramp up the beta on a portfolio without taking on margin debt.  2X and 3X ETFs can give you the same level of exposure without the concomitant possibility of losing the borrowed funds.   Just a thought.

2x and 3x ETFs are not suitable for long term investing due to their negative compounding effects.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #28 on: May 15, 2013, 10:27:32 AM »
Maybe have a think about how you feel about stock market losses.  They will happen from time to time.  If you beat yourself up about them without leverage, then leverage certainly isn't for you.  However, if you are gleefully buying more when the sky is falling, maybe it is.

This is me. I've looked on a bit sadly at the recent S&P run-up.... I have to pay 20% more for stocks than I did 6 months ago. If I didn't know better I'd be waiting for the next dip before buying more.

smedleyb

  • Bristles
  • ***
  • Posts: 434
Re: Newbie to leveraging - what do I need to know?
« Reply #29 on: May 15, 2013, 12:42:20 PM »
There's other ways to ramp up the beta on a portfolio without taking on margin debt.  2X and 3X ETFs can give you the same level of exposure without the concomitant possibility of losing the borrowed funds.   Just a thought.

2x and 3x ETFs are not suitable for long term investing due to their negative compounding effects.

This is quite true.  But over a 2-3 year time frame they can be useful tools for an investor looking for higher levels of beta without the concomitant desire to borrow or employ options.   As always due diligence by the investor is in order.

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1237
Re: Newbie to leveraging - what do I need to know?
« Reply #30 on: May 15, 2013, 05:36:07 PM »
This thread is really more of another version of "keep or pay off the mortgage" topic.  He is not thinking about margin accounts and instead wants to use a HELOC (which will have rate risk).  On that basis, anybody who has a mortgage AND investments is using leverage.  As such, I would rather have a fixed rate so I am not taking on rate risk along with market risk.

Agree with this.  People tend to have pretty varied views on debt, with a polar views on debt.

View 1: Debt is evil.  It must be avoided at all costs.
View 2: Debt? As long as I get what I want today, that's tomorrows (and hopefully someone else's) probem
View 3: Debt can be a useful tool.  If I can (on average) make more than the debt costs me, then sounds great!  But I want enough premium for my risk.

I'm very much of the third view on debt, but I can understand those that avoid debt entirely.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #31 on: May 17, 2013, 12:32:08 PM »
And the results are in...

My credit union generously offered me a HELOC at Bank of Canada prime plus 3%, which is 6%. Scrapping that plan.

Maybe I'll look into a margin account...

Self-employed-swami

  • Handlebar Stache
  • *****
  • Posts: 1090
  • Location: Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #32 on: May 17, 2013, 03:16:29 PM »
There are some banks out there (CIBC Firstline being one, but they aren't offering new mortgages now) that will give you a mortgage with a HELOC tied to it. As I pay down my mortgage, my HELOC gets larger.  My mortgage is at 2.99% and the HELOC is at 3.5% (Prime plus 1.5%).

Maybe talk to a mortgage broker, if you want to get a HELOC as a part of a mortgage.  I have a good one, if you want to message me, I can send you her contact info.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 39
  • Location: Vancouver, Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #33 on: May 17, 2013, 03:40:47 PM »
I think I'll probably do that for my next mortgage, but right now I'm sitting at 2.2% variable which is impossible to beat these days. :)

Self-employed-swami

  • Handlebar Stache
  • *****
  • Posts: 1090
  • Location: Canada
Re: Newbie to leveraging - what do I need to know?
« Reply #34 on: May 17, 2013, 03:42:15 PM »
Fair enough!

I wouldn't want to give that up either.