Guess what? When borrowing money to purchase a home, you don’t have to use the home as collateral. Yeah, that’s right. Sure, that’s what most people do. So, many people never consider that there may be a better option. If you are lucky enough to have financial assets that exceed the value of your down-payment or even the value of the house, you may be eligible for a pledged-asset loan.
Here’s how it works. You can borrow cash to buy a home from your stock broker or mortgage lender and secure that loan with stocks, bonds, gold, mutual funds or virtually any other financial asset. Because financial assets are highly liquid and the value is know with a high degree of certainty, the interest rate spread over the 10-year bond is very small. In English, that means you’re going to get a much better interest rate than if you chose to secure a mortgage loan.
There are some interesting benefits of a pledged-asset loan:
Obviously, this loan isn’t for Joe Average homebuyer. Not only would the borrower have to have substantial liquid assets but he or she would still have to show that they are able to carry the debt.
Some things to consider:
The pledged-asset loan is a powerful financial tool. It’s available as a fixed-term loan and as a variable rate line of credit. Consult with your CPA, tax attorney and lender to make sure it’s right for you.
|Drew de la Houssaye is an associate with THE BROKERAGE Real Estate Group Beverly Hills. Drew specializes in westside luxury real estate, renovations and probate sales. He blogs on Westside real estate, entertainment and local events. If you would like to contact him, he can be reached via twitter, facebook, LinkedIn or email.|