Line of credit

Usually, a line of credit (LOC) is a secured loan, and the most common LOC is a home equity line of credit. HELOCs let borrowers tap into their home equity, giving them ongoing access to funds and providing flexible monthly payment schedules. All loans with a property as collateral will be paid off when the property is sold in the TIME MACHINE.

Another popular use for LOCs is for leveraged investing. We allow investment loans to be set up for long periods of time, with an ACCOUNT set as collateral. You can set up an investment loan if you have a margin account with a broker, but that is usually meant for short-term trading.

If you have entered a Whole or Universal life policy in LIFE INSURANCE, you can enter a loan in LOANS, and select the insurance policy as collateral. You should only enter such loans that are obtained from a separate institution rather than through your policy. Usually, these loans are interest-only LOCs, but you can choose any type of loan. The borrower should match whomever owns the policy (yourself, your spouse, jointly held, or your CCPC).

You will need to enter the interest rate, as a percentage above or below the prime rate. Changes in the prime lending rate in the future can be set in RATES/YIELDS/CURRENCIES.

The TIME MACHINE considers the LOC as interest-only, meaning that only the interest on the funds borrowed is payable each month. There is no penalty for paying more, though, to bring down the balance, and that can happen in the TIME MACHINE, depending on your DEPOSIT PRIORITIES.

The TIME MACHINE will also borrow from the loan, up to the value of the credit limit (or the value of the collateral account if any, whichever is lower), but only if it needs the money, and depending on your WITHDRAWAL PRIORITIES.

A HELOC can be linked to a mortgage on your home so that the principal payments on your mortgage are "readvanced" through the line of credit, essentially increasing the HELOC credit limit. You must have the term mortgage loan entered first so that you can select it in the "Linked to term loan" entry box.

If you link the LOC to an investment account and borrow from the LOC to invest, the interest on the loan can be tax-deductible.

If you link the HELOC to both a mortgage loan and an investment account that is, re-borrow your principal payments on your home in order to invest, you are executing "The Smith Manoeuvre" and making the interest on the mortgage indirectly tax-deductible.

The TIME MACHINE will implement the manoeuver if you set it up, but it will not check the suitability of the investments for tax deductions. Please talk to your professional advisors before executing it for real.