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Leverage your investments for better lending options

June 11, 2019
Jeff Dannelly
Jeff Dannelly

Imagine you want to purchase a second home, buy an exquisite piece of art, pay your taxes, even-out a temporary cash-flow gap or make a large investment. You could liquidate a portion of your stocks and bonds for large expenses like these. But you’d rather not disrupt your investment strategy or trigger a potential taxable event by selling off profitable stock. One option to consider? Securities-backed lending.


Leverage your investment for better lending options


Low rates, flexible terms and low set-up costs

Securities-backed lending lets you borrow money by using your non-retirement investments as collateral. It can be a desirable borrowing solution because, once approved, it offers quick, easy access to cash at lower interest rates than various other options. Borrowers may also pay less in interest than what they would pay in capital gains taxes for selling a profitable investment. Of course, you should always consult your tax adviser relative to tax breaks.


You can typically borrow from 70 to 90 percent of the value of the investments you use as collateral. Factors affecting the loan-to-value (LTV) ratio include whether or not the securities are held by the lender and, when it comes to bonds, what bond type you’re using. If you intend to use the money you borrow to purchase securities (or to maintain, reduce or retire debt originally used to purchase securities), then federal regulations require a maximum LTV of 50 percent.


Securities-backed lines of credit can offer flexibility to customize terms to your needs. For instance, you may be able to choose an interest-only repayment option.* In addition, you can access funds as you need them, and, as you pay down your balance, funds become available to borrow again (up to your limit).


Another key benefit of securities-backed lines of credit is that they are cost effective to set up compared to other personal lines, such as home equity lines, which typically come with appraisal fees, certain other real-estate-related fees and other fees to set up. Securities-backed lines typically require minimal documentation helping to create an efficient application process.


The risks

The potential for losing your investment is the greatest risk involved with this form of financing. However, it’s also important to realize that if the value of your investment goes down, you could be asked to provide additional collateral. (If you don’t provide it within a typical 30-day “cure period,” the lender may opt to liquidate your collateral or reduce your line of credit.)


Is it the right fit?

Securities-backed financing isn’t right for every situation. It may make the most sense when you have a short-term cash need and a significant investment portfolio that allows you to leverage just a portion of it as collateral. To learn more about this option and discuss in detail whether it’s the right fit for your current needs, talk with your Private Banker.


Talk to a Private Banker


* Please note that generally an interest-only option would mean that your monthly payments would not be applied to the principal of the line of credit and, at the end of the line of credit term, you would have a balloon payment due.



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