Line of credit

Hello

I am looking at taking out a line of credit (home equity) to finance the purchase of shares. I have considered a margin loan, however most of my shares are international and I would like access to more funds to invest which a loc will offer me.

Can anyone tell me the adv and disadv of using a loc to invest in shares? for eg is interest deductable?

Many Thanks

Mika said:

Hello

I am looking at taking out a line of credit (home equity) to finance the purchase of shares. I have considered a margin loan, however most of my shares are international and I would like access to more funds to invest which a loc will offer me.

Can anyone tell me the adv and disadv of using a loc to invest in shares? for eg is interest deductable?

Many Thanks

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The interest rate for a line of credit will be higher than a margin loan, so it will be a more expensive way of investing.
My loc is about 6% higher than current margin rates.
As far as I know, the interest on the loc can still be tax deductable, but only for the amounts of money that are used for investing. So if you use it for other things you need to keep records how much is going where.
Another option for you might be to use the line of credit as cash security for a margin loan.

Really? What LOC rate do you have? Most LOC rates are about 9.49% pa range, whilst margin loans are slightly higher starting from around 10%. In most cases, LOCs are lower than MLs in terms of rates, which is an advantage of LOCs. Also, no chance of being margin called if your investment / loan breaches the buffer.

LOCs are still tax deductible as long as the investment you invest in is deemed to be "income generating" asset.

A disadvantage of the LOC is you will generally have to mortgage your property as security, so if the investment tanks and you default on the loan, they might take your home/investment property.

Either way, it's still gearing. Usually double edged sword benefit/costs of gearing.

Confused it with an overdraft, sorry for the poor advice - I'm still learning.