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)
Valuer des 600 000 $ de placement après 10 ans

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.

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B2B Bank does not provide investment advice to individuals or advisors and does not endorse or promote any investment products. While investment loans have the ability to magnify gains, they also have the potential to magnify market losses. Leveraging involves greater risk than purchasing investments using only your own cash resources because it has the potential to magnify investment losses. The dealer and advisor, not B2B Bank, are responsible for determining the suitability of investments for their clients and for informing them of the risks associated with borrowing to invest. B2B Bank acts solely in the capacity of lender and loan account administrator. Any loan approval from B2B Bank should not be construed as an endorsement of any investment choice, program or strategy. All loans are subject to credit approval and borrowed monies are due and payable regardless of the performance of the investments purchased. B2B Bank reserves the right to request additional information or documentation at its sole discretion. The B2B Bank Investment Loan Program is available exclusively through licensed financial advisors. ®B2B BANK is a registered trademark of B2B Bank.