Manulife Bank Investment Loans
Everyone has financial goals but sometimes finding the cash to support an investment plan can be difficult. We can help. A Manulife Bank Investment Loan can provide you with the cash you need to help you achieve your goals sooner. It's important to Understand Investment Leverage and we can help you do that.
Traditional investing is simple: earn money . . . save a portion of that money . . . invest money. But your money may not be working as hard as it could be for you. With investment leverage, rather than making a series of small contributions over a long period of time, you borrow a larger amount and invest it all at once. This allows a much larger investment to grow for your full investment period. Then, instead of making additional contributions to your investment, you make interest payments on your loan.
Explore the potential of leveraging with our Investment Loan Calculators
Interest-only Investment Loan Calculator - Explore three calculations to help you determine if an Investment Loan may be right for you:
- Monthly Payment Amount – The monthly amount you pay in loan interest may be the same as the amount you would normally contribute to a traditional investment plan.
- Principal Loan Amount – Investing a larger amount all at once rather than making a series of small contributions over a long period of time could allow a much larger investment to grow for your full investment period – which may generate a larger long-term return.
- Interest Rate – The interest rate will determine the monthly loan payment required to service the loan.
Principal and Interest Investment Loan Calculator - This calculator lets you determine your Investment Loan's potential monthly payment. A monthly principal loan repayment plan is a strategy to assist in repaying an Investment Loan prior to the time you plan to access the investment.
An effective wealth creation strategy
There are two powerful forces driving this strategy:
- Compound returns. An investment loan allows a larger amount to grow for longer which could generate a much larger long-term return.
- Tax deductibility. Interest charged on an investment loan is generally tax-deductible1. This can reduce your cost for the investment loan. By deducting loan interest, you're reducing your cost of investing and increasing the chance that leveraged investing will out-perform traditional investing.
1 Always confirm whether this applies to your investment loan with an accountant or financial advisor.
Two investment loan programs
Manulife Bank offers two investment loan programs – 100% Loans and Multiplier Loans. Each program offers no margin calls due to market fluctuations and other features.
100% Loans feature:
- 100% financed loans of $10,000 to $300,000.
- A simple application process with abbreviated underwriting for loans $100,000 and under
- Interest-only or principal and interest payments.
Multiplier Loans feature:
- 3:1 loan-to-deposit-ratio loans of $10,000 to $1,000,000.
- Interest-only or principal and interest payments.
A case study – the story of Mike and Liz
The story of Mike and Liz illustrates the power of leverage. Mike and Liz both want to invest to save for a dream vacation in 10 years. Liz diligently makes a lump sum deposit at the end of each year. Mike borrows $100,000 from Manulife Bank to invest immediately.
During the next 10 years, Liz contributes $28,911 and pays income tax of $555 for a total cost of investing of $29,467 and Mike's after-tax cost of borrowing is the same -- $29,467. Both investors earn a 5% return on their investment. After 10 years, they sell their investments, pay their taxes and Mike pays off his loan.
They compare their results and find that even though their cost of investing has been the same, Mike ends up with over $17,000 more to spend on his vacation!
Assumptions: Liz makes end-of-year contributions equivalent to Mike's net cost of borrowing. Cost of borrowing for Mike is 4.5% annually; loan interest is 100% deductible. Both clients: Annual taxable portion of fund return is 20%, tax rate on income allocations from funds is 30%, marginal tax rate is 45%. All assumptions are for illustration purposes only. Results will vary slightly for Quebec investors.
For more information, view the "Understanding Investment Leverage" Flash presentation.
Is leveraged investing right for you?
If you have a higher tolerance for risk, an investment horizon of at least 10 years and sufficient income to comfortably service an investment loan and applicable taxes, leveraging may be an appropriate strategy for you. Your financial advisor can help you understand investment leverage and help you decide whether an investment loan is right for you.
Important note about the risk of investment loans
There are risks and rewards associated with leveraged investing. Borrowing to invest can magnify losses as well as gains. If you are interested in leveraging, please read this important leveraging information and discuss this strategy with your financial advisor.
To find out more about Manulife Bank's 100% Loans and Multiplier Loans:
- Contact your financial advisor.
- To be referred to an independent advisor, please call 1-888-MANULIFE
- Contact us.