Should I put a secured loan towards GIC? | GIC discussions | Discussion forum

I have a Coast Capital GIC securing my unsecured line of credit attached to my chequing account, so that I benefit from their prime+0.50% borrowing rates (~4-4.25%). I think that's a good strategy.

However, what you're proposing is taking out a mortgage on your property (what amount, term, type, and amortization?) and then investing the proceeds in a GIC? Since a GIC is either credit union deposit insurance or CDIC insured, there's no investment risk, provided you stay within the deposit insurance limits. There's modest (i.e., relatively low) liquidity risk in that GIC may not be redeemable. Your house price could decline, but that only matters if you need to sell, or may need to sell, in the short- to medium-term. I would double-check the rate you're being offered on the mortgage, factor in that if the GIC is held in a taxable account, you need to factor in the income tax owed on the interest income on your after-tax return, and see what the differential is between what you pay in interest and what you receive. You must also analyze any mortgage administration or origination fees that will be charged as those affect what you are paying to service the mortgage. You'll also need to make sure your cash flow can support the required mortgage repayments. Depending on what it is (I suspect it is not much), then I wouldn't see the value in it.

Cheers,
Doug

Loonie said
One key question is whether you have already set up a secured line of credit against your house. If you haven't, then i wouldn't, because of the fees involved in setting it up and, later, discharging it. jIt requires registering a lien against your property, legal fees etc. I wouldn't do it unless you really need access to funds.

Thanks, Loonie. You summarized the types of added origination and administration fees for the mortgage well. I had added that in as an after-thought to my post.

Where are you going to get a GIC for 4%? I'm sure we'd all like to know!

Agreed...other than my 42-month 4% GICs with Coast Capital Savings, the chances of another one of those materializing are slim to none. Though, I note that Coast just completed $300 million in subordinated debt to accredited investors, with terms to maturity of between 10- and 11-years, yielding between 5-5.25%. No CDIC guarantee on those, but I'd take 5.25% for 10 years. Don't know why they don't do more of these issues to retail investors. I realize they can raise capital more quickly to ~30 accredited investors than they can with retail investors, but still, we get short-shafted. 😉

I'm wondering who is trying to sell you this. Sounds kind of suspect to me. I don't believe there is anywhere that you can get a safe, truly guaranteed, GIC for 4% right now. If there is, I'll be right over!
3.5% is possible, but rare.

I wrote the above before reading Doug's post. He makes valid points.  

Yeah, like I said, I think the only way this makes sense is if you want to have an emergency secured line of credit and take advantage of secured borrowing rates. But then, why not just secure the line of credit with a GIC like I did, right?

Cheers,
Doug