I first wrote about using my HELOC to invest in the post, How to Invest Your House in the Stock Market.
A Home Equity Line of Credit (HELOC) is money you can use from equity built up in your home. Overtime, as you make mortgage payments, your equity in your home increases.
In the summer of 2023, I decided to start using my HELOC to invest in the stock market. My plan was to choose two broad based index funds and stick to a predetermined allocation. I’ve been adding $3000/month.
XAW (85%) – iShares Core MSCI All Country World ex Canada Index ETF
VCN (15%) – Vanguard FTSE Canada All Cap Index ETF
On March 29th, 2024, I held 502 shares of XAW and 79 shares of VCN.
I’ve been paid $151 in dividends from the two funds and applied them to my mortgage.
But it’s not all sunshine and rainbows. At some point, I’ll have to pay back the $21 000 I borrowed to invest. In addition to paying back the borrowed funds, I have to pay monthly interest payments. To date, I’ve paid $501 in interest payments. The majority of the interest payments have been in 2024 but I’ll be able to deduct them from my taxes next year. I’ll also have to pay tax on my dividend payments but for simplicity sake, I’m not going to include those numbers.
The total gain can be calculated by taking the current value of the investment holdings and subtracting the amount borrowed plus interest paid.
Wrap Up and Takeaway
The stock market has shot up this year! I’m not naive to think that this rise will continue. Even with high interest rates, this leverage investing experiment has been profitable. However, I do realize that there will be a market correction, recession, or crash in the future. At that point, my strategy will be put to the test. I’m confident that this will work over the long term.
As long as I have the cash flow to service the debt, I’ll be okay. When it’s time to renew my mortgage in a few years, I’m going to merge my HELOC and mortgage into a readvanceable or fusion mortgage. This way I won’t need to have cash in hand to pay the interest. More on this in a future post.