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Borrowing money to invest
– moneysense.ca
Opening a margin account
A simple option to borrow to invest is by using a margin account at a brokerage. Depending on the existing investments in the account, a brokerage will lend up to a certain percentage of the value to an Canadian investor, at a specified interest rate.
You can have access to an amount of “maintenance excess,” which means that money needs to be kept in the account as collateral for borrowed securities. It generally ranges from 30% to 100% of the market value. Larger, established, blue-chip stocks may only have a 30% margin requirement, meaning up to $70 can be borrowed for every $100 invested.
Margin interest rates generally range from 7% to 10% but can vary. The interest is tax-deductible when the borrowed money is being used to invest but not if it is withdrawn and used for non-investment purposes. If stocks fall, in Canada, a margin account investor could have a “margin call” and need to deposit more funds or have to sell stocks to reduce leverage…
