How the strategy works
You borrow against your home's equity through a refinance, second mortgage or line of credit, then use those funds to purchase an investment, whether that is a rental property, shares, or a business venture. The goal is for the investment return to exceed the cost of borrowing.
The math has to work both ways
If the investment underperforms or loses value, you are still on the hook for the mortgage payments on the borrowed amount, regardless of how the investment performs. This is the core risk of leveraging and why it is not suited to every situation.
- Borrowing cost versus expected return
- Ability to cover payments if investment underperforms
- Time horizon of the investment
Tax considerations
Interest on money borrowed to invest may be tax deductible in Canada if used for income producing purposes, which can improve the overall economics of the strategy. This is a complex area and speaking with an accountant before proceeding is strongly recommended.
Building in a safety margin
A common approach is to only leverage a portion of available equity rather than the maximum possible, keeping a buffer in case of job loss, rate changes, or investment underperformance. Protecting your home should remain the priority even while pursuing growth.
Frequently asked questions
- Is interest on a home equity loan used for investing tax deductible?
- It can be, if the funds are used to earn investment income, but the rules are specific and confirming with an accountant is important before assuming this applies to your situation.
- How much equity should I use for investing?
- There is no fixed rule, but many advisors suggest leaving a comfortable buffer rather than borrowing to the maximum available limit.
- What happens if my investment loses money but I still owe the loan?
- You remain fully responsible for repaying the loan regardless of how the investment performs, which is why this strategy carries real risk.