HELoC vs. pledged asset LoC vs. ... something else?

Sojourner

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DW and I are mulling the idea of buying a new house sometime in 2025. Our current home is 100% owned by me (paid-off mortgage) and will be able to cover about half the cost of purchasing the new home once we sell it. In other words, the purchase price of the new home will likely be about twice the market value of our current home. I plan to pay for half the purchase price with cash I'll pull from MM funds in my brokerage accounts. The question is, what would be the ideal way to finance the other 50% of the purchase price?

I know that pledged asset lines of credit (PALOC) have been discussed around here as a good option for this kind of thing, so I'll be looking into that over the next few weeks. How do PALOCs typically compare with standard HELOCs for uses like this? What about margin loans through a brokerage? Or even just a plain old mortgage? I want to make sure I know about all the best options open to us FIREd folks and would appreciate any and all recommendations you'd care to share.

Oh, and one other question. Seeing how the interest rate environment is slowly becoming more and more favorable to borrowers, would it be prudent to "go slow" with something like a PALOC or HELOC? Maybe wait till after the next Fed move to see if I can get better rates? Or is that too much like trying to time the market?
 
It was a very different environment back in 2009 (following the housing crisis) but we could ONLY do a mortgage at that time. It might have been state specific as well. Hawaii is very conservative when it comes to borrowing. All the big defaults on no-docs, etc., happened in other states. Hawaii had few or none of these to default IIRC.
 
DW and I are mulling the idea of buying a new house sometime in 2025. Our current home is 100% owned by me (paid-off mortgage) and will be able to cover about half the cost of purchasing the new home once we sell it. In other words, the purchase price of the new home will likely be about twice the market value of our current home. I plan to pay for half the purchase price with cash I'll pull from MM funds in my brokerage accounts. The question is, what would be the ideal way to finance the other 50% of the purchase price?

I know that pledged asset lines of credit (PALOC) have been discussed around here as a good option for this kind of thing, so I'll be looking into that over the next few weeks. How do PALOCs typically compare with standard HELOCs for uses like this? What about margin loans through a brokerage? Or even just a plain old mortgage? I want to make sure I know about all the best options open to us FIREd folks and would appreciate any and all recommendations you'd care to share.

Oh, and one other question. Seeing how the interest rate environment is slowly becoming more and more favorable to borrowers, would it be prudent to "go slow" with something like a PALOC or HELOC? Maybe wait till after the next Fed move to see if I can get better rates? Or is that too much like trying to time the market?
We went the PALOC route in a similar situation earlier this year. Our new home was about 125% of the value of the home were planned to sell and my PALOC was sufficient to pay for the entire 125%.

So I borrowed the 125% from the PALOC and bought the house in mid-to-late March. We closed on the old home in late June. I used the 100% from the sale of the old home plus 25% from taxable savings to pay off the PALOC. So in effect we used the PALOC instead of a bridge loan.

I looked at a HELOC, but the fees were prohibitive in our circumstances.

The advantage of the PALOC was similicity and no fees. The application was approved in a couple days and other than interest there were no fees to set it up. Below are current rates. MM are counted at 94% and my preferreds generally at 70%. I'm not sure about other asset classes.

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We just built a new lake house and we used a HELOC for some temporary financing during the process, which also involved selling a lake house. But it was a bit of an unusual situation. I had an old HELOC on the books, left over from some business financing. The interest rate, though, was also old and unattractive. LIBOR based, too. When I approached USBank about adjusting the rate, they decided to just create a new HELOC. It was fairly time consuming, but they picked up all the costs. No charges to us at all. Had we been on the hook for a bunch of fees we would not have done it. So ... the lesson from that is that a HELOC can work, but it may take time and involve fees that would make it not cost-effective. TLDR: YMMV; look carefully at the details before you make a decision.
 
May be in the same boat next year, so have been investigating this for months; might want to do a search on bogleheads, where there are many threads.

The options off the top of my head:
  • conventional mortgage (probably not an option if not working)
  • bridge loan
  • HELOC
  • PALOC
  • margin loan
  • box spreads

Of those options, box spreads are probably the least expensive, but are also the most esoteric. We are leaning that way, but won't need to make any decisions for several months at least.

 
Is a reverse mortgage an option? Likely not the best but could be suitable in the right situation.
 
Is a reverse mortgage an option? Likely not the best but could be suitable in the right situation.
No expert here, but I think a big issue with a reverse mortgage is the relatively exorbitant fees. YMMV
 
Thanks to everyone for your replies and comments. Thinking PALOC will probably be my best option, but will have to carefully research the details. Happy holidays 🎄🥳
 
Our HELOC was no fee also, surprisingly easy with a local, but big credit union. The rate on it is still much better than the PALOC rates posted above. I'd be shopping for the lowest rate, unless it's going to be paid off right away, then for ease of use.
 
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