You need cash — maybe for a home renovation, honeymoon costs, or a timely market opportunity. But the fastest way to get it seems to be selling some of your investments. One strategy that's often overlooked is asset-backed lending: borrowing money against something you own, like your home or investment portfolio.
Keep in mind that while this type of borrowing can be a powerful tool, it isn't risk-free money. It comes with interest payments at typically variable rates, on top of the principal loan amount. And when you borrow against your assets, you risk losing those assets if you can't pay off the debt.
What is a home equity line of credit (HELOC)
A HELOC is a revolving line of credit where your house acts as the collateral. Your financial institution might offer one when you set up a mortgage. You can usually take one out at any time, provided you qualify and have enough equity in your home. A standalone HELOC generally requires more than 35% equity, while a HELOC combined with a mortgage can require as little as 20%.
HELOCs have a credit limit of 65% of your home's purchase price or market value, and come in a couple of flavours:
HELOC combined with a mortgage: sometimes called a readvanceable mortgage or combined loan plan, it pairs a fixed-term mortgage with a line of credit. The credit line grows as you pay down the mortgage principal, up to the 65% limit.
Standalone HELOC: a revolving line of credit whose limit stays fixed, up to the 65% maximum. It doesn't grow as you pay down your mortgage.
HELOCs typically come with lower interest rates than a personal line of credit or other loan, because your house secures the debt. But the rate is variable, so your repayment cost can climb quickly if rates rise.
HELOC interest is tax-deductible in Canada when the borrowed funds are used to generate income, like dividends or interest from investing. If you use the funds for personal expenses like a renovation, the interest won't qualify for a deduction.
Some HELOCs — called definite-term or closed HELOCs — have a set draw period. This typically lasts about 10 years, you can borrow as often as needed, up to your approved credit limit. During this time you make interest payments, and can pay down the principal if you choose. Many Canadian HELOCs, though, are open-ended: they revolve indefinitely with no fixed draw or repayment period, so you can borrow and repay at any time.
For definite-term HELOCs, after the draw period, the repayment period kicks in: you can no longer borrow from the HELOC, and you start actively paying down the principal. Your lender will typically set a monthly payment plan until the principal is repaid. That period could last 10 to 20 years.
HELOCs carry a major risk: if you can't repay what you owe, your lender could take your home.
What is a margin account
A margin account is a non-registered investing account that lets you borrow from your brokerage to buy securities or withdraw cash. It's a way to amplify your buying power: you can buy more securities than you could on your own, and any investment gains are yours to keep. The collateral for the loan is the securities in your margin account, including those you purchase on margin.
The margin is how much you need to deposit in order to borrow. Say you want to buy $5,000 worth of stock and the brokerage requires a 40% margin. You'd put $2,000 into your account — either cash or margin-eligible securities — while the brokerage lends the remaining 60% to buy the stock.
If your securities rise in value and you sell them, the brokerage pays itself back first before passing the profits to you.
Buying on margin is a higher-risk investment strategy. While it can increase your gains, it can equally accelerate your losses — there's potential to lose more money than your initial investment.
You'll pay interest on the money you borrow from your brokerage. The rate is variable and often more favourable than other loans. It's typically calculated daily, for as long as you hold the margin position.
You must maintain the minimum margin requirement in your account at all times. If your securities drop in value, your balance could fall below the minimum, triggering what's called a margin call.
Your brokerage will warn you to top your account back up to the minimum, whether by selling securities or adding cash or margin-eligible securities. If you don't fund it in time, the brokerage can sell the securities in your account.
What is a portfolio line of credit
A portfolio line of credit (PLOC) is another type of margin loan. It's a loan from your brokerage that uses your investment portfolio as security to ensure you'll pay the funds back.
Both a PLOC and a margin account use investments as collateral. But a PLOC is typically used for personal purchases, such as buying a car or paying an unexpected tax bill. It can be used for investing, too.
A PLOC lets you leverage your portfolio without selling securities, forfeiting long-term growth, or triggering a capital gains tax bill. Your investments serve as collateral, but they stay invested in the market so you can keep building your wealth.
You're typically pre-approved for a PLOC and can skip a credit check. The variable interest rate is usually lower than personal loans and lines of credit, and sometimes cheaper than HELOCs. Repayment terms are flexible: you can make interest-only payments and repay the principal on your own timeline.
A PLOC lets you borrow a set percentage of your portfolio's value, though usually less than a margin account allows. Borrowing close to your credit limit can be risky. If a market crash lowers your portfolio's value, your loan could quickly exceed the maximum allowable limit.
That would trigger a requirement to fund your investment account, with cash or by selling or depositing eligible assets. This is why PLOC borrowing limits are generally lower than margin and other lines of credit — they buffer against this kind of scenario.
HELOC vs. margin account vs. portfolio line of credit
HELOC | Margin account | __Portfolio line of credit __ | |
|---|---|---|---|
| Collateral | Home | Investment portfolio | Investment portfolio |
| Primary use | Life expenses | Buying securities (and life expenses) | Life expenses (and buying securities) |
| Typical interest rate | Low | Low | Low |
| Risk of losing asset | Foreclosure | Liquidation of securities in margin account | Liquidation of portfolio |
| Typical loan-to-value ratio (LTV) | Up to 65% | Between 50 - 70% | Up to 35% of your portfolio |
How to choose which loan to use
Not sure which loan fits your circumstances? These typical scenarios can help you choose.
Scenario: you want to borrow $20,000 to renovate your kitchen, and you want the lowest possible borrowing interest rate.
The HELOC is the strongest fit here. Its rate is variable but typically lower than other options. Repayment is flexible: you can repay principal and interest during the draw period, or make interest payments until the repayment period begins.
Scenario: you're an experienced investor looking to borrow funds to buy a promising stock you think will soon appreciate in value.
Buying on margin is likely the strongest fit. A margin account is purpose-built for boosting your buying power in the market. Because interest is calculated daily, a quick, profitable trade may leave you paying little interest.
Scenario: you've just made a successful offer on a home and need cash for the down payment. But your largest investment account is non-registered, and liquidating it would trigger a large tax bill.
When time is tight, a PLOC or margin account can work. You can usually open the line of credit and receive funds quickly, since you're often pre-approved, rather than waiting days for a securities sale to settle. It turns your portfolio into a liquidity tool without selling securities, paying capital gains tax, or losing future growth potential.