The latest in mortgage news: BC government unveils details of its proposed home-flipping tax + MORE Feb 27th

—Martha

Borrowing from a home equity line of credit

You know, Martha, in some circles, leveraging—or borrowing to invest—is a taboo subject. I find that funny because there is much less controversy when people borrow to:

Buy a car, which depreciates in value;

buy a house, which normally appreciates, but it can decline;

or take a vacation as a lifestyle investment.

So, why is there controversy around borrowing to invest? It is probably due to a lack of understanding, coupled with the fact that when leveraging goes bad, it’s not good.

Let’s talk about leverage. If you borrow $100,000 at 8%, what rate of return would you have to earn on your investments to break even? Would you guess 8%?

Most people would agree with that answer; it sounds logical, right? I mean, if you borrow $100,000 at 8% and paid $8,000 in interest costs then that would mean you would have to make $8,000 on your $100,000 investment to break even, which is 8%…