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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. 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 the accounts you use as collateral. Generally, you'll receive a higher limit if those accounts contain investments that 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 the value of your investments and up to 50% of cash. These are general maximums, not a fixed formula. The actual amount each asset contributes depends on its individual risk profile and can be lower than these figures. This buffer helps account for fluctuations if your investments lose value. If your credit limit is lower than these maximums suggest, it's likely because some of your investments carry a higher risk profile or include assets that don't count toward 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'll have reached your credit limit.
If this happens, our system automatically applies protective restrictions. If you have multiple margin-enabled accounts (such as a portfolio line of credit and a standard margin account), these restrictions will apply across all of your margin and collateral accounts until your portfolio line of credit is brought back within its limit:
- You can't borrow any more money with your portfolio line of credit.
- You can't buy new assets or open new positions in your collateral accounts or any other margin accounts except joint margin or Business margin accounts.
- You can't withdraw or transfer money or holdings out of your collateral accounts or any other margin accounts.
- You can't transfer cash between your own margin-enabled accounts (for example, you can't move cash from a healthy margin account into your portfolio line of credit to pay down the loan).
To remove these restrictions, you must pay back some of your loan balance or deposit additional eligible assets to 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.
Transfer restrictions for portfolio line of credit funds
Borrowing to invest means using loaned funds, such as a personal line of credit, home equity line of credit (HELOC), or investment loan, to add money to your investments. You're required to repay the loan, and this strategy can increase both your potential gains and your potential losses, so it isn't the right fit for everyone.
This applies when you transfer funds from your Wealthsimple portfolio line of credit into a managed account. We're responsible for determining whether a borrowing to invest strategy is suitable for you, so we review your overall financial situation before you can move borrowed funds into a managed account. If it isn't the right fit for you today, you may not be eligible right now. This can change as your circumstances change.
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 assets 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?
We updated our lending limits to provide you with more flexibility. You can now borrow up to 35% of your collateral investment value, depending on the specific assets you hold.
I calculated my credit limit myself using the 35%/50% figures, but the number in my account is different. Why?
The 35% and 50% figures are general maximums, not exact formulas. Your actual credit limit depends on the specific margin requirement of each asset you hold, which can be higher or lower than these maximums. The number in your account settings reflects your current eligible holdings and is always more accurate than a manual estimate.
Can support tell me exactly how my credit limit was calculated?
No. We can't provide a personalized calculation or breakdown of your credit limit. Your account settings show the most current figure, along with how much each collateral account contributes.
Why did my credit limit change even though my investments didn't?
Margin requirements on individual assets can change at any time due to market conditions, without a change in the market value of your holdings. This can raise or lower your credit limit even if nothing in your portfolio changed.
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