Get your personalized investment leverage illustration
This strategy calculator is used by Pankaj Bhatia, PFA, CHS to prepare personalized client illustrations. It models 1:1, 1:2 and 1:3 investment loans, the loan rate, estimated tax savings, flat or year-by-year return paths and a same-cash-flow benchmark, with a year-by-year table and a PDF report you can keep.
Please contact Pankaj Bhatia for an illustration with your own numbers.
$100,000 of your own money, 10 years, at 1:1, 1:2 and 1:3
The loan is interest-only at 5.20%. The comparison invests the same gross monthly interest each month instead of borrowing, alongside the same $100,000. Assumes a 51.39% marginal tax rate, a 50% capital-gains inclusion rate, fully deductible interest, and tax savings kept as cash rather than reinvested. Values are after estimated tax on gains and, for leverage, after repaying the loan in full.
| Loan ratio | Loan | Monthly interest | Invest monthly instead, 8% | Leveraged, 8% | Leverage vs monthly, 8% | Leverage vs monthly, 6% |
|---|---|---|---|---|---|---|
| 1:1 | $100,000 | $433.33 | $257,473 | $272,228 | +$14,755 | −$6,912 |
| 1:2 | $200,000 | $866.67 | $328,833 | $358,342 | +$29,509 | −$13,824 |
| 1:3 | $300,000 | $1,300.00 | $400,192 | $444,456 | +$44,264 | −$20,736 |
At a steady 8% a year, leverage finishes ahead in all three structures; at 6% it finishes behind, because the loan costs 5.20% before tax. $100,000 invested alone with no monthly additions would reach $186,114 at 8% ($158,764 at 6%). Estimated tax savings on the interest over 10 years are $26,723, $53,446 and $80,168 for 1:1, 1:2 and 1:3. Real returns vary and can be negative, and the loan remains owed in any market; an illustration can test early or late downturns. Hypothetical example, not a forecast or recommendation.
Canadian investment leverage — questions and answers
What is a 1:3 investment leverage loan?
For each dollar of your own capital, you borrow three dollars. Investing $100,000 of your own funds with a $300,000 loan gives $400,000 of investment exposure. The debt remains payable regardless of investment performance.
Is investment loan interest tax-deductible in Canada?
It may be deductible when borrowed money is traced to qualifying income-earning uses and the applicable tax conditions are met. Interest used to purchase investments that can produce only capital gains generally does not satisfy the income-earning purpose test. Discuss the specific investments and tracing with your tax adviser.
Is an 8% assumed return guaranteed?
No. Positive, zero and negative annual returns are hypothetical. A leveraged portfolio can lose more than your initial equity and still leave an unpaid loan balance.
Why compare leverage with monthly investing?
Paying loan interest requires cash. The monthly-investing alternative uses that same gross monthly interest amount as regular contributions to provide a comparison of the committed cash flow before possible tax savings. The refund-reinvestment option introduces additional investment cash flow and is therefore not a fully matched after-tax comparison.
Why does the order of returns matter?
With no deposits or withdrawals, identical compounded returns produce identical ending lump-sum values regardless of order. The order can matter for monthly investments, distributions, or withdrawals.