Home Equity Diversification PlanTM
Investors Group can help you put your real estate equity to work, creating the opportunity to build wealth gradually using the Home Equity Diversification Plan
How does the plan work?
- You continue to make your regular mortgage payments and gradually replace the balance owing on your mortgage with an investment loan used to build your investment portfolio.
- Using our flexible Solutions BankingTM All-in-One product, the process is simple and automatic.
- Gradually, you have the potential to increase, your net worth while your overall debt level remains consistent.
Benefits
The Investors Group Home Equity Diversification Plan could provide you with the following benefits:
| Wealth Building | You can invest regularly without affecting your standard of living as your payment amount remains the same. |
|---|---|
| Tax-savings | The interest costs on the investment loan could be tax-deductible, potentially saving you money. |
| Stability | Because you are investing on a regular basis you are able to take advantage of dollar-cost averaging, helping to minimize the effects of market fluctuations. |
| Customization | Your investments are placed into a customized and diversified investment portfolio, designed to match your objectives and personal tolerance for risk. |
| Flexibility | You have the flexibility to stop or modify your investment plan at any time should your personal situation change. |
Example
On a 25 year, $150,000 mortgage this strategy could increase your after-tax net worth by more than $75,000* compared to an investor who only focused on paying down their mortgage.
Potential Risks to Borrowing-to-Invest?
This strategy lets you decide how much risk you wish to assume. It is still important however, to keep the potential risks in mind when borrowing-to-invest:
- Gains and losses are amplified,
- Market fluctuations affect investment values,
- Variable interest rate fluctuations can impact the amount owing, and
- Liquidity requirements for investments and interest deductibility may need to be clarified.
Will this strategy work for you?
The Home Equity Diversification Plan is ideal when you want to maximize your long-term financial goals. Generally, this strategy works best for individuals who:
- Are in their economic growth years (late 30s to early 50s);
- Have higher than average incomes and do not want to increase their monthly obligations;
- Have a minimum of 25 per cent equity in their home;
- Have a high risk tolerance – generally invested in moderately aggressive or aggressive portfolios; and most importantly,
- Have a long-term investment time horizon of 25 years or more.
Want to find out if this fits your plan? Talk to an Investors Group Consultant to talk about whether or not this strategy could work for you.
*Assumptions - Assumes a simple annual interest rate of six per cent on the All-in-One sub-accounts and the alternative mortgage for the length of the strategy (note that the interest rate on an Investors Group Solutions BankingTM All-in-One Account is variable). The investment sub-account is used to purchase investments at the beginning of each month, starting in the second month. The annual tax deduction is applied to reduce the balance of the mortgage sub-account, which in turn increases the credit limit on the investment sub-account. The full amount of credit room is used for each contribution. Tax savings are calculated based on a marginal tax rate of 43.41 per cent. Investment account balances are used after the 25th year to pay out the All-in-One sub-accounts and deferred tax liabilities. Returns are projected assuming 0.5% from dividends, 0.5% from annual capital gains and 6.5% in deferred capital growth, for a total compounded return of 7.5 per cen. The value of the home at inception of the projections is $200,000 with a growth rate of 2% per year. The outstanding mortgage balance is $150,000. The rates of return used in the example are used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.
The strategies represented may involve loans for the purpose of investing and are based on the assumption that the interest costs are tax deductible for Federal income tax purposes. Borrowing to invest is a long-term investment strategy and may be more suitable for higher income individuals and may not be appropriate in all circumstances and is not for everyone. Gains from positive fluctuations in the value of investments will be magnified, but losses from negative fluctuations in the value of investments will also be magnified.
