In this article:
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. You can borrow up to 35% of your collateral investment value with a portfolio line of credit.
It's important to understand how your limit is calculated and what happens if the value of your investments drops.
How your credit limit is calculated
We calculate your credit limit by looking at the total value and risk level of your collateral investments. Generally, you'll receive a higher limit if your investments have more value and lower risk. The specific contribution of each asset depends on its risk profile, with cash typically offering the highest contribution to your credit limit and volatile investments offering less.
You can borrow up to 35% of your collateral investment value. This limit helps account for fluctuations if your investments lose value. If the credit limit you’re given is less than 35% of your collateral investment value, it's because some of your investments may have a slightly riskier profile or include assets that don't contribute to your limit.
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.
- You can't buy assets in a collateral account that would cause your credit limit to fall below your balance.
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
Why can't I buy more assets in my collateral account?
When you borrow money with your portfolio line of credit, investments, and cash in your collateral accounts, secure your loan. Actions in your collateral accounts, like buying stocks, withdrawing money, or transferring assetss may be limited or restricted to prevent you from defaulting.
To fix this, you can pay down your balance first, try a smaller transaction, or increase the value of your collateral accounts.
Why has my borrowing limit increased?
Comments
0 comments
Article is closed for comments.