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Hi, I'm in a fortunate position where as a perk of the company I work for, I can borrow up to $350K at only 1%. I'm looking at maxing this out and just dumping all the money in a High Interest Savings account that pays 1.6%. My calculations indicate I'd make $2,100 a year for basically doing nothing. Of course, I could do a lot better by investing the money, but I have a lot in high risk investments now, so don't need any more risk in my portfolio.

Is this free money too good to be true? I assume from a tax perspective, this would be taxed as gains on income. Assuming this is correct, how do I calculate what it would likely cost me? Also, what would be the credit file impact of borrowing this amount for this purpose. I would be paying the interest back on a monthly basis... is it just the same as having a mortgage for this amount? (I've paid off my mortgage and have no other debt).

Thoughts and input would be appreciated!
 

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If I am not mistaken, asuming a HELOC, if your payment commitment is interest only, yes you can make free money. If you have to pay back any principal, it won't work. Your principal portion should be way more than the intesrest earned.
 

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If I am not mistaken, asuming a HELOC, if your payment commitment is interest only, yes you can make free money. If you have to pay back any principal, it won't work. Your principal portion should be way more than the intesrest earned.
Thanks... it would be a HELOC, yes. There is no principal to be paid back. Thoughts on tax / credit file implications?
 

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We have a recent thread that asks why retail investors tend to not make (much) money
http://canadianmoneyforum.com/showthread.php/45026-Theory-why-average-investors-don-t-make-money

I pointed out that retail investors engage in risk propositions that corporations (like bank traders) never would. I think the HELOC is one example. A bank trader would never borrow against his own home to speculate in the stock market. You're using your HOME as collateral against speculative investments!

A banker would only borrow with other people's money. Just food for thought :)
 

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... I pointed out that retail investors engage in risk propositions that corporations (like bank traders) never would. I think the HELOC is one example. A bank trader would never borrow against his own home to speculate in the stock market. You're using your HOME as collateral against speculative investments!
Others have pointed out that it's not HELOC.

As for the corps ... that may be true but it does not seem to be all that enforced. I've heard discount broker phone reps talking about how their salary is not great but access a fast trading platform as well as company margin has meant their side trades are a much larger income.


Cheers
 

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factors to consider

What happens if you cease to work there? (lay-off or other mishap.) I assume the loan would become due? Or the interest rate would revert to "normal" (market) levels. In this case, you're absolutely right to keep your investment/savings highly liquid, and (virtually) risk-free.

I'm not a tax expert, but I believe your $350k @ 1% would be a taxable (employment) benefit, which would be taxed at your marginal tax rate. However, you may be able to deduct this interest from your taxes since the loan is for investment purposes. Then, of course, whatever interest you earn would be taxed.

I'd ask a Financial Planner or accountant about it to have some piece of mind.
 

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We have a recent thread that asks why retail investors tend to not make (much) money
http://canadianmoneyforum.com/showthread.php/45026-Theory-why-average-investors-don-t-make-money

I pointed out that retail investors engage in risk propositions that corporations (like bank traders) never would. I think the HELOC is one example. A bank trader would never borrow against his own home to speculate in the stock market. You're using your HOME as collateral against speculative investments!

A banker would only borrow with other people's money. Just food for thought :)
What is wrong with borrowing against your home for investment purposes? I wouldn't recommend it if you wouldn't be able to handle the debt if the investments went completely sour (ie 2008) but it can be a productive way to increase your investment footprint. I have been doing that for years (even through 2008) and I'm still happy with the decision. And I'm still paying prime. Just make sure you have a 'clean' paper trail and appropriate documentation in case the CRA ever asks.
 

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Hi, I'm in a fortunate position where as a perk of the company I work for, I can borrow up to $350K at only 1%. I'm looking at maxing this out and just dumping all the money in a High Interest Savings account that pays 1.6%. My calculations indicate I'd make $2,100 a year for basically doing nothing. Of course, I could do a lot better by investing the money, but I have a lot in high risk investments now, so don't need any more risk in my portfolio.

Is this free money too good to be true? I assume from a tax perspective, this would be taxed as gains on income. Assuming this is correct, how do I calculate what it would likely cost me? Also, what would be the credit file impact of borrowing this amount for this purpose. I would be paying the interest back on a monthly basis... is it just the same as having a mortgage for this amount? (I've paid off my mortgage and have no other debt).

Thoughts and input would be appreciated!
At the present time, the prescribed interest rate for employee loans is 1%. If you receive a loan with a rate lower than the prescribed rate, the interest difference is a benefit from employment. So if the prescribed interest rate changes, your employee loan will also likely increase. The interest you pay is deductible if you use the proceeds to make investments. With regards to investing in bank high interest savings accounts, just make sure don't invest over $100,000 with any one bank. All bank savings accounts up to that amount are guaranteed by the Canadian government.
 

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With regards to investing in bank high interest savings accounts, just make sure don't invest over $100,000 with any one bank. All bank savings accounts up to that amount are guaranteed by the Canadian government.
I believe the CDIC $100k insurance is a little more complicated than that, as in, if the HISA is issued through another institution (or possibly different account type) each *may* have their own $100k coverage.
 

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CDIC rules is $100k per entity! Like for TD, they have 4 entities, which mean you can be covered for total of $400k assuming it is split in the 4 entities (in Quebec 3 entities). I don't know how many entities the other banks have, but it's a comment mistake people make when they refer to CDIC and what's covered.
 

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the Big Five have more than one entity
Yes, but the big-5 do not have HISA offerings that make this whole thing feasible. To make 1.6% or 2% you'd have to be in the HT, Oaken, PT, PC or maybe Tangerine space. And with these you don't have the diversity of legal CDIC entities inside. Or even CDIC in some cases.
 

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Discussion Starter #16
Thanks all for your feedback! To answer a few of the questions that came up...

1. Even though it's a company perk, it's still secured against my home. Thus, it's a HELOC... given I'm talking about putting the money in a savings account, I'm having a hard time understanding where there's any risk. If the LOC rate increases, the savings rate decreases, I lose my job... whatever, I just transfer the money back to the LOC and pay it off.
2. If I leave the company, I lose the rate. It would stay in the same accounts but at the Joe Public rate. If that were to happen, I'd simply transfer the money from the savings account back to the LOC - paying it all off. Seems pretty straightforward to me.
3. Both the LOC and the Savings account are with the company I work for, not a third party.

OK, I can probably figure out the tax implications... what about credit file impact? Is there any risk to do doing from that perspective, or is it the same as having a mortgage at $350K?
 

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Yes, but the big-5 do not have HISA offerings that make this whole thing feasible. To make 1.6% or 2% you'd have to be in the HT, Oaken, PT, PC or maybe Tangerine space. And with these you don't have the diversity of legal CDIC entities inside. Or even CDIC in some cases.
of course the big-5's interest rate on HISA is pretty low, my point was just to say that $100k per bank isn't actually correct.
 

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Thanks all for your feedback! To answer a few of the questions that came up...

1. Even though it's a company perk, it's still secured against my home. Thus, it's a HELOC... given I'm talking about putting the money in a savings account, I'm having a hard time understanding where there's any risk. If the LOC rate increases, the savings rate decreases, I lose my job... whatever, I just transfer the money back to the LOC and pay it off.
2. If I leave the company, I lose the rate. It would stay in the same accounts but at the Joe Public rate. If that were to happen, I'd simply transfer the money from the savings account back to the LOC - paying it all off. Seems pretty straightforward to me.
3. Both the LOC and the Savings account are with the company I work for, not a third party.

OK, I can probably figure out the tax implications... what about credit file impact? Is there any risk to do doing from that perspective, or is it the same as having a mortgage at $350K?

Credit utilization rate influence credit record; if you max out your LOC, or any type of credit, credit record may be impacted.
 
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