B2B Bank

Investment Loan Stories


Gary and Eva - Excess Cash Flow

Gary and Eva are like a lot of Canadian couples moving into their 50s.

After years of focusing on paying off their mortgage and living within their means, they are now mortgage free. They made their last $1,500 mortgage payment in June.

They dream of a retirement that includes travel and continuing to indulge in their shared hobbies, but they’re worried their current savings approach won’t be enough.


Situation

Gary and Eva are not sure whether putting the extra $1,500 a month into traditional savings strategy will achieve their financial goals.

Recommendation

On the advice of Eva’s co-worker, the couple meet with an accredited financial advisor, Thomas, with 20 years experience. Working together, they review Gary and Eva’s current financial objectives, risk tolerance, cash flow and retirement goals. They agree that a traditional approach may not reach their goal of winters spent in the sun on a beach - they need to accelerate their savings.

Solution

Thomas recommends a borrowing to invest strategy as a way to increase the couple’s retirement savings.

  • $200,000 investment loan
  • Interest rate of 3.75% (Prime +0.75%)
  • Amortization period of 15 year
  • Loan paid off before the couple plans on retiring at 65
  • Monthly payment of $1,454.44 includes principal and interest

The combination of amortization period and payment types means the loan will be paid off before the couple reaches their planned retirement age of 65.

Results

Gary and Eva review the numbers and the potential risks associated with borrowing to invest. They know that the loan must be paid back, regardless of the value of the investments, but are comfortable with the risk.

Based on an annual rate of return of 6% - after 15 years, Gary and Eva will have paid out a total of $200,000 in principal and $61,800 in interest.

However, their investment savings will be worth $479,311, a net gain of $217,511 that will help them achieve their retirement goals.

  • Value of $200,000 investment after 15 years is $479,311.
  • $61,800 Interest paid
  • $200,000 Loan amount
  • $217,511 Net gain
Chart

Calculations are for illustration purposes only. Actual rates and amounts may differ. Investment Loan Stories, and the figures contained therein, are hypothetical examples and are not intended to project or predict actual results. Please Note: The images of persons featured on this web site are images of models and are used for illustrative purposes only; none of these images are actual clients of B2B Bank.

Carlos and Marianne – Maximize Wealth

Carlos (46) and Marianne (44) are successful professionals married with 3 young children. Both of them are in the highest income bracket (>$200k).

They have only $100,000 left on their mortgage and have consistently maximized their RRSPs and children’s RESP contributions.

Situation

This year they will use up their RRSP contribution allowance and are looking for additional ways to maximize their wealth.

They have turned to their long time financial advisor, Evan, who specializes in high net worth clients, to develop an investment strategy that is right for them.

Recommendation

Evan has worked with the family for years, he performs a detailed review of Carlos and Marianne’s financial objectives, risk tolerances, cash flow and time horizon to ensure that there haven’t been any changes in lifestyle or priorities since their last meeting.

Based on Carlos and Marianne’s goals, Evan recommends an investment loan.

With an investment loan the couple can use:

  • the loan to increase their investment savings; and
  • the interest deductibility to reduce their effective borrowing costs

Solution

A $300,000 investment loan (x2)
  • Interest rate of 3.75 % (Prime + 0.75%)
  • Interest only payments, as they will use their tax refunds to pay down the principal of the loan
  • Monthly payments of $937.50 (X 12 = $11,250)

Results

After careful consideration of the potential risks, Carlos and Marianne adopt Evan’s borrow to invest recommendation and each take out a $300,000 investment loan.

After 10 years, based on an assumed rate of return of 6%, Carlos and Marianne’s initial $600,000 investment is now worth $1,074,509, and they have each paid $112,500 in interest.

Both Carlos and Marianne may be able to deduct the $11,250 interest payments from their taxes each year that they have the loans, effectively reducing their cost of borrowing.

  • Value of $600,000 investment after 10 years is $1,074,509
  • $112,500 Interest paid per loan
  • $600,000 Total loan amount
  • $249,509 Net gain (after repayment of loan)

Calculations are for illustration purposes only. Actual rates and amounts may differ. Investment Loan Stories, and the figures contained therein, are hypothetical examples and are not intended to project or predict actual results. Please Note: The images of persons featured on this web site are images of models and are used for illustrative purposes only; none of these images are actual clients of B2B Bank.

Ali and Saira – Leaving a Legacy

Ali (28) and Saira (27) are married with 2 kids and have a manageable mortgage and steady incomes.

They have two long-term financial goals, save for their retirement and leave a sizable inheritance to their kids.

They both make yearly RRSP contributions to reach their retirement goal and Ali contributes $1,778 a month, through a pre-authorized contribution plan (PAC), to a non-registered savings account.

Situation

While Ali and Saira are on the right track to reach their retirement goal, they are concerned that the $21,366 a year savings will not generate the inheritance they dream of leaving for their children.

Working with their advisor Laila, Ali and Saira review what they would ideally like to leave for their children, their risk tolerances, cash flow and time horizon.

Recommendation

Based on the financial review, Laila recommends a borrow to invest strategy for the couple, with the same payment amount as the PAC.

By investing a lump sum now, the couple’s investments have the potential to generate greater returns to reach their financial goals.

Solution

Ali

  • $125,000 investment loan
  • Interest rate of 3.75 % (Prime +0.75%)
  • Principal and interest payments over 20 years
  • Monthly payments of $741.11

Saira

  • $175,000 investment loan ($50,000 more than Ali)
  • Interest rate of 3.75% (Prime +0.75%)
  • Principal and interest payments over 20 years
  • Monthly payments of $1,037.55

Results

Ali and Saira, with a full awareness of the potential risks of investment lending, move forward with Laila’s recommendation and collectively borrow $300,000.

The total monthly loan payment for the couple is $1,778, which is within their budgeted $2,000 monthly savings amount.

After 20 years, with an assumed annual rate of return of 6%, Ali and Saira would have:

  • Grown their initial investment to a value of $962,140 after 20 years.
  • Paid $126,878 in interest, which may be deductible*.
  • Generated a net gain of $535,262.

This solution will help them meet their goals of leaving a sizeable inheritance and saving for their retirement.

Without the investment loan, Ali's monthly PAC contributions of $1,778 over 20 years with an assumed rate of return of 6%, would only be worth $825,925.

*Interest is not deductible in all circumstances. Individuals should consult a qualified tax specialist for more information.
Calculations are for illustration purposes only. Actual rates and amounts may differ. Investment Loan Stories, and the figures contained therein, are hypothetical examples and are not intended to project or predict actual results. Please Note: The images of persons featured on this web site are images of models and are used for illustrative purposes only; none of these images are actual clients of B2B Bank.

Ian - Retire Early

Ian (50) is a spender. His passion for motorcycles and vintage cars means he often carries personal debt.

He and his friends often talk about their retirement plans, and though a number of his friends are planning retirement in their early 60s, Ian’s current retirement savings make his planned retirement closer to 65+.

Realizing that with 15 more years of working he needs to get his spending under control if he is going to retire, Ian turns to Jacob a friend and financial advisor.

Situation

Ian’s situation is familiar to a lot of Canadians, who enjoy spending on big ticket lifestyle items, which leaves little cash left over for savings. He knows that he needs to put more of his money towards savings if he hopes to retire in his 60s.

Recommendation

Together, Ian and Jacob review Ian’s, financial objectives, risk tolerance, cash flow and time horizon.

The first thing Jacob does is explain to Ian the concept of good debt versus bad debt. Jacob recommends cutting back on lifestyle spending and directing more money towards savings.

As Ian is 50, a traditional savings approach, with 10 years of compound growth, will probably not achieve his goal of retiring at 60. As an option, Jacob suggests a borrow to invest strategy to accelerate his savings.

Solution

  • $250,000 investment loan
  • Interest rate of 3.75 % (Prime +0.75%)
  • Principal and interest payments over 10 years
  • Loan paid off before Ian moves into retirement
  • Monthly payments of $2,501.53 (Ian currently spends $2,500 on lifestyle debt)

Results

Ian and Jacob discuss the risks of borrowing to invest and the fact that the loan must be paid back, regardless of the value of the investment. For Ian this is an acceptable risk and he is committed to changing his lifestyle to achieve his retirement goal.

Ian sells a few of his vintage cars and uses this money to pay off his credit card and personal loan debt. He is now in the situation where he can take the $2,500 monthly sum he was using to pay those loans, and direct it towards an investment loan.

Over 10 years, assuming an annual rate of return of 6%, Ian would have paid out a total of $250,000 in principal and $50,184 in interest (total $300,184).

His total investment savings is planned to be worth $447,711 (difference of +$147,527), putting him much closer to retirement.

  • Value of $250,000 investment after 10 years is $447,711
  • $50,184 Interest paid
  • $250,000 Loan amount
  • $147,527 Net gain

Calculations are for illustration purposes only. Actual rates and amounts may differ. Investment Loan Stories, and the figures contained therein, are hypothetical examples and are not intended to project or predict actual results. Please Note: The images of persons featured on this web site are images of models and are used for illustrative purposes only; none of these images are actual clients of B2B Bank.

Investment Loan Calculator

How much do you need to invest today to reach your financial goals?

Use our simple calculator to see what size of an investment you need to make today, to achieve your financial goals tomorrow.

Financial Goal
$
Time Frame
Rate of Return
%
Initial Investment = $

Your Results

To achieve your financial goal of $1,000,000.00 in 25 years, based on an estimated return rate of 10.00%, you would need to make an investment of $92,296.00

Present Value Calculation
PV
Present Value ($)
Time Period (years)

The calculations shown are for illustration purposes only. Actual rates and amounts may differ. B2B Bank cannot be held responsible for the accuracy of the calculation performed or the amounts indicated. Please Note: The images of persons featured on this Web site are images of models and are used for illustrative purposes only; none of these images are actual clients of B2B Bank.