A portfolio line of credit lets you borrow money against the value of your investments, meaning you can unlock value from your portfolio without having to sell stocks, exchange-traded funds (ETFs), and bonds. That makes the portfolio line of credit a secured line of credit — your assets are what provide the "secured" part — like a home equity line of credit (HELOC), where you borrow against the value of your home.
Because your investments are the collateral for the loan, you're typically pre-approved and your financial institution can lend you the funds pretty quickly.
A portfolio line of credit can be a useful tool if you see an investment opportunity or need cash for an important or unexpected expense, but don't want to interrupt your investment growth or trigger a tax bill. But it isn't without risk: if the value of your investments drops significantly, it could affect the loan amount you qualify for and in extreme scenarios trigger a need to add more collateral to your account to restore its value or pay back the loan.
How a portfolio line of credit works
A portfolio line of credit is a loan from your brokerage that's secured by your investments. You can borrow up to a certain percentage of the value of your portfolio on a revolving basis — meaning you can borrow, pay it off, and borrow again without having to re-apply for credit.
You can typically pay back the loan on your own timeline, and need to make monthly interest-only payments based on the amount borrowed. Speaking of interest: because the loan is backed by your assets, it's often offered at a lower interest rate than unsecured personal lines of credit, and can even be cheaper than HELOCs.
You'll have to choose at least one investment account to use as collateral for the line of credit. Brokerages may not support using certain types of accounts as collateral, like registered retirement savings plans, registered education savings plans, or accounts you share jointly with another person.
5 strategic ways to use a portfolio line of credit
Consolidating debt
If you have higher-interest debt in other places, such as on your credit cards, car loans, or personal loans, you can use funds from a portfolio line of credit to quickly pay them off. Then you can pay down your consolidated debt at the lower interest rate on a schedule that works for you.
Making a competitive offer in real estate
You often need to move quickly in real estate, whether it's to access extra funds to make a competitive offer in a bidding war or to pull together your down payment deposit after an offer's been accepted. It can act as liquid cash in these scenarios, allowing you to avoid waiting for funds to clear or selling off assets that have growth potential.
Managing unexpected tax liabilities
If your income taxes come in higher than expected, dipping into the line of credit can bridge the gap. You're able to pay the tax man on time without being forced to sell securities, a particularly useful tool if the market's down.
Paying for a wedding or big trip — without selling assets
This ensures you can pay for the fun things in life without compromising your long-term investing strategy. For example, selling $50,000 worth of stocks from a non-registered account to cover the costs of your wedding could trigger a significant capital gains tax bill; borrowing that same $50,000 avoids that tax event and keeps your money invested in the market.
Having an emergency fund
If you don't have the classic 3 to 6 months' expenses in a savings account, or you're in the process of rebuilding it, the line of credit can help you bridge the gap if an unexpected expense crops up.
Benefits of a portfolio line of credit
Borrowing against your portfolio keeps your investments working while you cover a cost today. Your holdings stay in the market, so they can continue to benefit from compounding — the snowball effect of investment gains, dividends, and interest being reinvested and passively growing your wealth.
Because the loan is secured by your assets, the interest rate is often lower than an unsecured personal line of credit. It can even be cheaper than a HELOC. You also avoid selling securities, which sidesteps a potential capital gains tax bill and lets you access cash quickly on a revolving basis.
Risks and considerations
Needing to add funds quickly
Your credit limit is a percentage of your portfolio — so if markets suffer a particularly volatile stretch and the total value of the cash and securities you hold drops significantly, you might not have sufficient collateral for the loan you've taken out.
If this happens, it will trigger the need to add more cash or qualifying securities to your investment account to restore your collateral, otherwise your financial institution will liquidate them. You can also address insufficient collateral by repaying a portion of your loan balance to bring it back within the limit, either with cash or by selling eligible securities.
Interest rate volatility
While these interest rates tend to be lower than other loan products, they're also variable. If the Bank of Canada (BOC) raises its overnight rate, it will likely become more costly to maintain, and pay down, your loan. As an example, here's what interest payments on the same $15,000 balance would look like today and in 2023, at the top of the BOC's rate-hiking cycle, assuming an interest rate of prime + 0.5%.
Scenario | Prime rate | Rate you pay (prime + 0.5%) | Monthly interest | Annual interest |
|---|---|---|---|---|
| Today | 4.45% | 4.95% | $61.88 | $742.50 |
| 2023 | 7.2% | 7.7% | $96.25 | $1,155 |
Keep in mind that when you're using any line of credit, you're borrowing against your future self. When you consider using this type of loan, you should have a clear and realistic repayment plan in mind.
How to qualify for a portfolio line of credit
Qualifying usually depends on the value and type of investments you hold rather than a credit check. Because the portfolio itself acts as collateral, brokerages look at your eligible-account holdings and set your limit as a percentage of that value.
Eligible accounts: non-registered or taxable accounts generally qualify, while registered accounts such as a registered retirement savings plan (RRSP) or registered education savings plan (RESP), along with jointly held accounts, often don't.
Minimum portfolio value: many providers set a minimum amount you need to hold before you can borrow.
Eligible securities: widely traded stocks, ETFs, and bonds are usually accepted, while volatile or thinly traded assets may be limited.
Once you're approved, you can borrow, repay, and borrow again without reapplying, making interest-only payments on the amount you use.