Asset based mortgage

[Broland]

My daughter and her husband recently purchased a vacation home secured by her holdings of a particular stock. She told me that it had a lower interest rate than a mortgage. She is differently situated than almost all of us as her income is more than adequate to obtain a mortgage and her non-IRA investments are substantial. She lives in California (which may make a difference) but if posters want to know I could ask her for the name of the lender.

I'm interested in the lender. Thanks

 

[ERD50]

My daughter and her husband recently purchased a vacation home secured by her holdings of a particular stock. She told me that it had a lower interest rate than a mortgage. She is differently situated than almost all of us as her income is more than adequate to obtain a mortgage and her non-IRA investments are substantial. She lives in California (which may make a difference) but if posters want to know I could ask her for the name of the lender.

I'm interested in the lender. Thanks

This sounds like we have done. The "lender" is yourself, you are borrowing money against your own funds. It a Line of credit against the money in your account. So it's a matter of whether your brokerage will do a LOC on your assets there. I had a large enough account at Etrade, and they were able to do the LOC for me, at a lower than mortgage rate (2.8%-something?). You just have to have enough equity relative to the debt. And I do think they will give a lower debt/equity ratio if you are in individual stocks rather than large diversified funds.

I looked, and for Fidelity, all I could find was a margin loan at much higher rates.

The "catch" is, that rate is floating, so I can't expect it to stay that low forever. I plan to apply for a regular 30 year to lock in these historically low rates, but heard that no one wants to touch a mortgage under these conditions until the home has been owned for ~ 6 months. But it (mostly) simplified the home purchase, and that was part of the goal. Now I can deal with mortgage shopping w/o all the rush of the home buying 'experience'.

-ERD50

 

[Brat]

My daughter just told me she didn't take a loan on the property. I knew that. I think what happened is what ERD50 described.

 

[Ramen]

When I was pondering a home purchase last year, an agent pointed me to a local/regional bank that routinely does asset-based mortgages with a 70% loan to value. So for example it can lend up to $280K on a $400K house, meaning the buyer would put down $120K plus pay closing costs. I opted not to buy after all but saved the info for future reference.

 

[GTFan]

This sounds like we have done. The "lender" is yourself, you are borrowing money against your own funds. It a Line of credit against the money in your account. So it's a matter of whether your brokerage will do a LOC on your assets there. I had a large enough account at Etrade, and they were able to do the LOC for me, at a lower than mortgage rate (2.8%-something?). You just have to have enough equity relative to the debt. And I do think they will give a lower debt/equity ratio if you are in individual stocks rather than large diversified funds.

I looked, and for Fidelity, all I could find was a margin loan at much higher rates.

The "catch" is, that rate is floating, so I can't expect it to stay that low forever. I plan to apply for a regular 30 year to lock in these historically low rates, but heard that no one wants to touch a mortgage under these conditions until the home has been owned for ~ 6 months. But it (mostly) simplified the home purchase, and that was part of the goal. Now I can deal with mortgage shopping w/o all the rush of the home buying 'experience'.

-ERD50

Schwab has a Pledged Asset Line for SOFR (Secured overnight financing rate) + 2.4% if you have $1 mil with them. Right now that's less than 2.5%, and yeah it's floating so it's a bridge loan unless you want ride it until rates rise enough to get your attention. It's SOFR + 2.9% if you have less than $1 mil, but then you need to keep a closer eye on your loan to value ratio so you don't have a margin call. No fees that I could see, it's just a straight-up loan that they can approve in a few days. The max loan is 70% of your asset value but you'd not want to be anywhere near that in case the market has a correction.

https://www.schwab.com/pledged-asset-line

If we ever pull the trigger, a good strategy might be to pay cash for a new house with a bridge loan like this, then move when you want and sell the old house and pay off the loan. That way you have no contigencies on the new house other than the usual inspection etc. so you're basically a straight cash buyer superior to most loan buyers. Plus you're borrowing cheaper than your money can earn in the market with little closing costs, you could hold the loan until rates rise then pay it off.

 

[jazz4cash]

This sounds like we have done. The "lender" is yourself, you are borrowing money against your own funds. It a Line of credit against the money in your account. So it's a matter of whether your brokerage will do a LOC on your assets there. I had a large enough account at Etrade, and they were able to do the LOC for me, at a lower than mortgage rate (2.8%-something?). You just have to have enough equity relative to the debt. And I do think they will give a lower debt/equity ratio if you are in individual stocks rather than large diversified funds.



I looked, and for Fidelity, all I could find was a margin loan at much higher rates.



The "catch" is, that rate is floating, so I can't expect it to stay that low forever. I plan to apply for a regular 30 year to lock in these historically low rates, but heard that no one wants to touch a mortgage under these conditions until the home has been owned for ~ 6 months. But it (mostly) simplified the home purchase, and that was part of the goal. Now I can deal with mortgage shopping w/o all the rush of the home buying 'experience'.



-ERD50

I had assumed the loan being discussed was a margin loan but now it sounds very similar but it’s actually something else? Interested to hear more details like….
How are you lending money to yourself without liquidating the asset….
And if your are lending money to yourself who receives the interest.

 

[ERD50]

I had assumed the loan being discussed was a margin loan but now it sounds very similar but it’s actually something else? Interested to hear more details like….
How are you lending money to yourself without liquidating the asset….
And if your are lending money to yourself who receives the interest.

Yes, a Line of Credit against my assets. Similar to a margin loan, but different I guess, because the rate was much lower. Also not offered against IRAs.

As I understand it, this is through the "banking" arm of Etrade, and is relatively new for them?

Saying I'm "lending to myself" was a bit loose with words, now that I think about it. Yes, Etrade is the lender, they get the interest, but my assets at Etrade are the collateral for the loan. The home isn't really involved, IIRC they only ask that the money is not used to buy stocks (probably a few other restrictions, but real estate was one of the examples that it could be used for), and I don't know how they'd verify that anyhow.

I think you just have to call your brokerage house and ask if they do Lines of Credit and what the rates are. Couldn't seem to find it at Fidelity, GTFan just posted that Schwab does it under certain conditions.

-ERD50

 

[tryan]

Couple years ago I wanted more dry powder for a real estate auction coming up. So I offered a free n'clear rental as equity for a heloc. Had a 20 year relationship with TDBank ... paid off 2 mortgages with them in the last 5 years. They had decades of on time payments.

I said "set the loan to value ratio anywhere you want. But I haven't had a W2 in over 15 years." NOPE! I needed a co-signer.

 

[GTFan]

I think you just have to call your brokerage house and ask if they do Lines of Credit and what the rates are. Couldn't seem to find it at Fidelity, GTFan just posted that Schwab does it under certain conditions.

-ERD50

The only condition at Schwab that I could see is that it has to be nonretirement assets, they take mutual funds, equity, bonds etc. as collateral for the LoC. And you have to initially draw min. $70k for the line but I can't see anyone needing less than that for a house anyway.

Schwab Bank determines eligible collateral for your flexible line of credit, which generally includes

Marginable equity securities valued at or above $3/share at the time of funding and closing
Most mutual funds and exchange-traded funds
Certificates of deposit and cash
Many corporate, Treasury, municipal, and government agency bonds
Retirement assets are not eligible.

Of course you'd have to transfer your brokerage account(s) over to them first, but there are no restrictions on what you do with the assets as long as you maintain less than 70% LTV. 2.5% for a no-fee LoC on min. $1mil asset value is cheap loan money right now, could easily borrow a few hundred $K without losing sleep over it.

Interactive Brokers also has cheap margin loans (2-3%) but they are geared more towards pro investors.

 

[jazz4cash]

Yes, a Line of Credit against my assets. Similar to a margin loan, but different I guess, because the rate was much lower. Also not offered against IRAs.





I think you just have to call your brokerage house and ask if they do Lines of Credit and what the rates are. Couldn't seem to find it at Fidelity, GTFan just posted that Schwab does it under certain conditions.



-ERD50

Ok I found this about SBLOC’s. Security Backed Lines of Credit. Sounds exactly like a margin loan except you cannot use it to buy securities (indeed, how could they even know?). The long article never compares them directly to margins loans but it seems like the rates tend to be very similar to HELOCs (index + margin, variable). Also it says monthly interest payments are required. If collateral value drops enough you get a “maintenance call”, not a margin call!

https://www.finra.org/investors/alerts/securities-backed-lines-credit

 

[rayvt]

Is it non-callable? Because if they can call it at will, then it's just like a margin loan.
How about the interest rate? Is it fixed or floating?

 

[jazz4cash]

Is it non-callable? Because if they can call it at will, then it's just like a margin loan.
How about the interest rate? Is it fixed or floating?

I can’t imagine it could be non callable. You’ve posted assets as collateral. Collateral. Interest rate is variable like a HELOC. No term, monthly interest payments. It sounds like it may require a minimum draw, like 100k so not that handy to have just in case it’s needed.

 

[harley]

It sounds like there are some loan options available using assets as collateral, but what I (and I believe the OP) wanted was a way to get a mortgage at a reasonably competitive low fixed rate using just assets vs. income. It sounds like it's possible, but pretty hard to find. I suspect these more obscure loans and lines of credit are at higher and probably variable rates. It's just a shame that assets don't seem to count for much in getting a standard 15 or 30 year low rate mortgage.

 

[SoClose]

Yes, asset based mortgages are available. Obtained one this year from a mortgage broker. Traditional banks are no way.

Loan Depot and I3 lending are a couple I found who had this option

 

[SoClose]

Yes, asset based mortgages are available. Obtained one this year from a mortgage broker. Traditional banks are no way.

Loan Depot and I3 lending are a couple I found who had this option

Forgot to mention I Received 30 year at 3% (only slightly higher than income based loan)

 

[daylatedollarshort]

It sounds like there are some loan options available using assets as collateral, but what I (and I believe the OP) wanted was a way to get a mortgage at a reasonably competitive low fixed rate using just assets vs. income. It sounds like it's possible, but pretty hard to find. I suspect these more obscure loans and lines of credit are at higher and probably variable rates. It's just a shame that assets don't seem to count for much in getting a standard 15 or 30 year low rate mortgage.

If you can do the transfers from a retirement account, all the lenders in the Costco program I contacted accepted these with a 1 month transfer history. The last time I checked the rates were 2.75 - 2.85% on 30 year loans, no points, no fees. I didn't ask about non-retirement accounts so can't comment on that.

 

[RetiredHappy]

We took up a small mortgage when we bought our home this year. We have been retired for several years and the only real income which we have are my husband's SS and RMD. In our taxable accounts, we have dividends and interests. We were looking at several options
- LMA (Loan Management Account) from Merrill Lynch which does not require any first time utilization, for up to about 70% of taxable account assets.
- Take a conventional 30-year fixed mortgage with BOA

The BOA loan officer/broker was a pain to work with. Because they had direct access to all of our BOA accounts and Merrill Lynch. She submitted our income information sources from SS, monthly withdrawal from taxable accounts because we had suspended RMD last year due to COVID waiver, taxable accounts dividends and interests. She also included all net worth information in the application, existing home, taxable and taxed deferred accounts, and last 2 years income tax returns. The assurance which we got was that we would be able to pay for the house with 100% loan if we wanted and it was a matter of how we would get it structured. In the end we got the loan amount we wanted. We did not pay down with point and got a 2.75% rate. We received $1.5K closing cost credit by being a ML client. By taking a loan, it cost only 0.5% of value of home in closing cost.