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Overview
Your portfolio line of credit allows you to borrow money against your investments. Because your credit limit is tied to the market value of your assets, your credit limit can fluctuate. It is important to understand how your limit is calculated and what happens if the value of your investments drops.
How your credit limit is calculated
The portfolio line of credit has a conservative credit limit. This helps to make sure you can secure your loan, even if your collateral value changes due to market swings.
Your credit limit is calculated daily based on the assets in your collateral accounts. There are a number of factors that contribute to your credit limit, including the type and value of assets in your collateral accounts.
You can view how much each collateral account contributes to your credit limit in the account settings after opening an account.
How to know if an asset contributes to your credit limit
Not all assets are treated equally; some increase your credit limit more than others and some don't increase it at all. We call assets that add to your credit limit eligible holdings.
To check if an asset is eligible, search for the asset on Wealthsimple, tap on the asset detail page, and look for margin requirement. If this value is less than 100%, the asset will increase your credit limit. The lower this percentage, the more the asset contributes to your credit limit.
Reaching your credit limit
If you borrow the maximum amount available, or if your credit limit falls below your borrowed amount, you will have reached your credit limit.
If this happens, the following restrictions apply:
- You can't borrow any more money with your portfolio line of credit.
- You can't withdraw or transfer money or holdings out of a collateral account.
- You can't buy more assets with any cash in your collateral accounts.
To remove these restrictions, you must pay back some of your loan balance or increase your collateral.
Not enough collateral to secure your loan
If the value of your collateral investments drops significantly, you may fall below the minimum required value to secure your loan.
If this happens, we will send you an email with the amount you need to repay and a deadline. You must take action to restore your account health.
How to resolve when your collateral drops below the minimum value
You have two options if your collateral drops below the minimum required value:
- Repay your loan: Repay a portion of the loan balance to bring it back within the limit.
- Increase your collateral: Add value to your collateral accounts to bring them back within the limit.
Frequently asked questions
What's the difference between a portfolio line of credit and a personal line of credit?
A portfolio line of credit uses your investments as collateral, allowing you to borrow without selling assets, while a personal line of credit is unsecured and based solely on your creditworthiness.
How is this different than borrowing from my margin account?
Your portfolio line of credit is a margin loan, but it's less risky. Here's why:
- Your credit limit is more conservative, so there's a bigger buffer to protect you if your investment collateral loses value.
- People typically use their portfolio line of credit to withdraw cash for everyday needs, not to buy more investments. This means losses aren't as magnified.
Learn more about borrowing from your margin account.
Can I claim interest as a tax deduction?
If you borrow money to invest, the interest is generally tax-deductible. However, if you borrow for personal use, you generally cannot claim that as a deduction. We recommend checking with a qualified tax expert for your specific situation.
How does borrowing affect my client plan?
Borrowing cash from your portfolio line of credit and withdrawing it from Wealthsimple effectively reduces your assets under management. This can reduce your client plan level (for example, moving from Premium to Core).
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