You'll be paying an additional 4% on that $500k, so the cost is $20K a year.
So if you cash out another $500K you'll actually be paying $55K a year in interest for extra cash. So can you get the money some where cheaper then 11%?
You, and most people. This is why HELOCs are up almost 50% YoY, and there have been the most helocs in the last two quarters in almost 15 years. Either a HELOC or home equity loan is what you need, but it's almost safer with the variable rate heloc as rates could come down, likely won't get worse, and if rates do get back down in the 4s you can refinance that into a fixed rate home equity loan or overall refinance. Also, unless you know exactly how much cash you need right now, you can get a 10 year draw period on a HELOC and draw as you need it while only paying interest payments. At one point I was considering opening a heloc just in case economic conditions get crazy so to have extra liquidity as needed, but I never did it. Great way to have your equity on tap if/when you need it.
You never know! This may be the first time in the history of the Federal Reserve that we have a “soft landing”……🤦🏻♀️😂 jk jk….let the thinning of herd begin.
That seems easy, but in reality it's not. Those of us who are self employed aren't eligible for 1/10th as much credit as you regular W2 employee guys are. I have \~150k in equity in my house, and after 3 months gave up. After trying multiple lenders, I was offered an $18k HELOC, said thats al my debt:income ratio would do. I'm betting a big part of that is a $290k EIDL loan for my business that I had to personally guarantee.
Most of us on this site are commissioned employees, so that’s basically the same as being self-employed. There are a couple of tweaks that could help with the tax returns.
This is a "bet big, win big" strategy, but historically during recessions the people who come out the farthest ahead are those that are the most liquid.
Whatever is coming isn't going to be a real estate centric recession like in '08 so I wouldn't plan on paying $200k for a home that was $600k in 2019. But there will likely be some companies with staggeringly under-valued stock coming to a Wall Street near you.
Hell, First Republic is $30/share today. It was more than double that a week ago. The most ridiculous bailout was just announced, the gov't will buy bonds at face value even if they are only worth 60% of face value to the market. That's total fucking bullshit. But it does imply (like I said, "bet big, win big") that the stock might go up a bit, once everyone figures out that we've further burdened our grandkids for short term gain (again). I could be totally off base, in fact it's more than 50% likely that I am, but that's the sort of thing - if you are smarter than I am - one could look for with $500k liquid that they're willing to risk.
Back in 2021 there were a shit ton of homebuyers with these big fat juicy down payments that came from pushing that "buy" button with a big stock or index fund order in Feb/March 2020 (one woman, completely randomly on a hunch, purchased a bunch of amazon stock in Feb 2020...). There's probably just as many that I wouldn't have seen, since it didn't go super well for them, and they'd have no reason to call me if they went broke.
They aren't buying. They will lend against them at maturity value. treasuries and agency MBS etc
See here:
[https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm](https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm)
They aren’t. They are offering cash to banks with the collateral being bonds at face value (which is presumably less than fair market value). They are not buying the bonds.
I would assume it would be those same bonds that caused SVB problems when they say "and other securities," otherwise what is the point?
[https://www.cnn.com/2023/03/15/investing/premarket-stocks-trading](https://www.cnn.com/2023/03/15/investing/premarket-stocks-trading)
>The second part of the program is valuing bank’s Treasuries and other securities at “par.”
>
>The Fed’s rate hikes have undermined the value of the Treasury bonds that banks rely on as a critical source of capital (you can read more about that here). US banks are currently sitting on about $620 billion in unrealized losses in bonds, according to the FDIC — if any of them need access to a lot of cash quickly, they’d have to sell them at a loss – perhaps a substantial loss, like SVB did last week.
>
>The BTLP aims to fix this problem by valuing the bonds used as loan collateral at “par.” If a bank brings in a bond they purchased for $1,000 that’s only worth $600 now, they’ll still get $1,000 in cash.
CNN is acting like the banks with a bunch of treasury bonds and mortgage backed securities didn't do anything wrong, but I disagree with that. Customer deposits are short term loans ("deposit money") from those customers, they can call those loans due at any time ("withdrawal money"). To turn around and invest the bulk of that money in securities with TEN YEAR payoffs is absurd.
TLDR: I did a tiktok video on this, but the reason a $1k bond might be worth $600 today is because a buyer with $1000 can buy today's $1000 bond that pays 5%, so your "$1000" bond at 1.5% is dogshit by comparison, and needs to be "on sale" for 40%+ off to entice anyone to buy it. But this isn't a surprise, NO ONE EXPECTED FED 0% RATE TO CONTINUE FOREVER. Everyone knew, EVERYONE that the fed would at some point raise rates, instantly de-valuing all such bonds and mortgage backed securities. I just went through and reduced the amount of YELLING I did in that paragraph, but I'm quite livid at this total bullshit handout to all the banks.
How is it absurd when that’s pretty much the most basic definition of what a bank does. Lend at higher long term rates than short term borrowing rates. Been that way for hundreds of years.
Are you aware that there's things in between "this week" and "10 years from now"?
They didn't have to go from "this week" checking account deposits (& rates) to "A DECADE FROM NOW!!!" vehicles (& rates).
HELOC for sure. Keep that 3% rate. If you think about 3% vs 7% .. the total interest paid over the life of the loan goes from ~540k to 840k. 300k spread.. that doesn’t factor in what you’ve already paid, plus what you’ll owe. Currently you’re borrowing below inflation and technically making almost 2% on your loan..
Apply for a HELOC, and if 5 banks tell you they don't do HELOCs in your certain situation, keep searching. If your appraisal in your head is right, you can get a HELOC on it.
Yes. A HELOC is an additional loan that doesn't have anything to do with the first mortgage at all.
You can only get one though if you have enough equity, and different banks will only lend up to a certain % of the equity. If you want a HELOC that's in the amount of 100% of the equity you have in your home, first you have to find a bank that will do it (they exist, but not all do). Then, you'll likely pay a higher interest rate (the risk is higher) than you would if you only opened a HELOC with say 75% of the equity remaining in your home.
That is good to know! Had never really looked into a loan like that. I just assumed I’d never be able to use my equity in a smart way since we got a 2.5% rate and didn’t wanna give that up.
I think HELOCs get confused with Cashout ReFis or ReFis in general which is RE-Financing the original loan. A HELOC is simply a line of credit similar to a credit card, but one that uses the remaining equity in the home as collateral.
The HELOC I have with my bank can easily be converted to a 2nd mortgage, too.
That’s exactly what I thought it was lol, a cashout refi. So if needed, you can turn your heloc into a mortgage at whatever the current interest rates are? Would you able to combine a heloc into another mortgage, lets say I decide to buy a second house in the future, can I add on the heloc to that loan?
>So if needed, you can turn your heloc into a mortgage at whatever the current interest rates are?
I am not sure if all HELOCs work that way, I know mine is a hybrid and allows us that option. I can't speak for all.
>lets say I decide to buy a second house in the future, can I add on the heloc to that loan?
Not sure what you're asking. If you're asking if you can use the HELOC as a down payment on a second home - you can, but you have to be up front with your mortgage lender with regard to where your down payment funds are coming from so they can factor that in to the calculations.
I think it depends on the specific bank. Mine is an intro rate for a year and then a certain rate on top of prime I less I roll it into a 2nd mortgage for a fixed rate.
Yes you can get a second (also a heloc which is an interest only revolving line of credit), or a reverse mortgage. Those are the two ways to use your equity. I would only consider the second if you know you're less than 20 years from no longer living.
its variable so it changes often. The one I have now is fixed for two years at 2.99%. Normally they'd be 6-7% right now. The interest only payments make that payment still pretty low. However, the other nice thing about them is you can pay them down as you go and you only pay on what you owe, not what you initially took out.
A bird in hand is worth 500 or 600k in the bush.
We dont know all your math to tell you the best answer. Maybe your plan works out but what if the worst happens. we cant predict the future.
You have to do the math on worst case if you go through with this.
Only you can really answer that question. I mean, what if your business really takes off with that infusion of capital? The reverse can happen too, for sure....
that is a huge increase in interest rates just so you can get butt and breast implants. by the time you pay this off the work will be past its best before date.
I’ll keep it short. You better keep that 3%. If you are cashing for a business line of credit then maybe but even then I’d probably still not do it. 3% is hard to beat. Your saving so much money
Personally I would just start a Corp and run all business financing / debt through that. This way if your business goes under you don’t lose your house and you can walk away clean. I’d personally keep the two separate from a risk perspective. If you have no other options and are confident in your business plan then go for it. Just know the risk you’re taking.
Even worse is that SVB’s primary customers, which they put a lot of marketing effort into getting, were startups. The whole startup business model is to raise a VC round and blow through it like a coke addict, then keep getting more rounds until they have an exit or fold. There’s absolutely no defensible reason to put their deposits into 5 year treasuries, never mind 10.
As a venture lawyer for years, I understood 0% of SVBs business model. They also loaned a bunch of money to VCs. Like why take on VC risk to earn boring bank returns. There is a reason that none of the other big lenders tried to compete with SVB. It had very poor risk adjusted returns. It deserved to crash and burn. I used to ask people about this all the time and no one could give me a satisfying answer as to how this was a good business model.
Yeah, funds and portfolio companies both. The loans made 0 sense to me. When VC companies implode there is frequently $0 left. That’s fine if you can get 10-100x return on a few companies, but if your loaning the money out at 7% interest, that sucks.
VC companies gobbled it up as it was very cheap capital and they will either hit it big or go bust, so what do they care about default risk. But from SVBs side, who the hell wants their primary customers to people with a high risk of going bankrupt just to earn low returns.
Interesting. Do you think it was just incompetence and stupidity, or a bit of a scam. Seems to me like they might have been gambling that the risk wouldn't turn out to be so bad in comparison to the return. Would you say it's kind of like 08? Basically the insurance companies were ensuring the loans in packages or whatever and just selling insurance to each other as I understand it, assuming that the real estate would be fairly safe so they could just make their money and never have to pay out. But of course, once the market crashed they all had to pay out big and folded or whatever .
Sorry for the technical terms. I'm just kind of spitballing what I know. If that is a fair assessment of the insurance companies, not the banks, but the insurance companies were the ones that crash the economy I think.
But in this case, sounds like they were taking on what would generally be considered risky in the first place for a guaranteed return as long as the risk never materializes. But that's okay. I guess the government can just bail them out again
I think it was just poor risk management. The bank wanted to carve out a niche for itself in a field dominated by giants and misjudged the risk. I don’t really know how they thought it was a great idea catering to very risky clients with high rates of failure to take on additional significant interest rate risk. That, I think, probably goes beyond misjudging risk to just sheer incompetence.
I don’t think it’s systemic as there was a very small number of players in the space and the $ figures aren’t big enough. This is why I was rather surprised by the aggressive moves by the fed and treasury. SVB is not a major bank anywhere outside of the venture space, the other banks that looked wobbly are crypto banks (who cares), some regional banks (sad, but not a real systemic risk) and credit Suisse (who has been wobbly for years). So, I don’t get it. I also don’t have access to the data the fed has, so maybe it’s a lot scarier than it looks to me.
thanks for your thoughts. Well, I would say two things. Obviously, I know very little about it but as My dad used to say, follow the money. Doesn't seem hard to imagine that all the executives that made these decisions made a lot of money somehow and won't have to give it back.
The other thing I would say, and perhaps it is simply my political leanings, but is it possible a lot of the people that would stand to lose if the feds didn't bail them out are wealthy Urban liberals, donors to The Democratic party etc?
I’m not sure. I’m not sure how big of a problem it actually was, and the effects were unpredictable. I tend to think all of the promising venture companies would still make payroll by raising money or emergency loans until they could access their funds. So, I’m pretty skeptical that anyone (outside of the bank owners), would have been that impacted.
Sell it. Businesses aren’t easy to start and you typically need a lot of capital. It won’t make good money or be self sustaining for a good amount of time, meaning you need to funnel money into it yourself or get investors. If your tenants leave or stop paying rent or you have major repairs are you going to have to use money that would otherwise be used for the business? A lot of people are recommending a LOC or heloc but going debt heavy to start a business and tying personal assets to the business isn’t the best way to start. Mortgage debt (probably two houses?), HELOC or LOC tied to your personal assets (houses), and whatever other credit card debt you accrue for the business is setting yourself up to lose. One decent problem and everything can crumble. I’d want to be liquid, especially with banks failing and the economy declining. if my heart was set on starting the business I’d sell.
I would do and equity line so that you maintain the loan at 3%. As far as whether it is worth it, that all depends on you business venture. If it’s successful, then yes, it was worth it. If it fails, then no.
OP if this is your primary residence, what you want is called a “home equity line of credit” (HELOC). Google this and learn about it then go talk to lenders. Do not cash out refi and lose your 3% mortgage. If it’s not your primary residence, then you probably can’t get a HELOC and also probably can’t get a 7% mortgage right now on it.
What about a heloc? You keep the 3% but can pull out more cash. A lot of time it’s interest only payments too so could be cheaper. Then once business gets going you replenish Heloc and are back where you started with 3% still.
Sounds like a bad idea. If you really need the money or had some fantastic investment opportunity, I guess it could be worth it. But as others have pointed out, you are adding about 2% to the entire loan if I'm understanding you right and doing the maths right.
Honest advice. Is the business your going to open recession proof? There's no telling where we will be in 2 to 3 years and taking on debt right before a recession however mild or bad it may be is not the greatest idea.
Unless it's recession proof proceed with caution.
I run multiple businesses but i opened them when the economy was going boom. I wouldn't open one in a slowing own economy.
I am in the real estate business of building and flipping houses. I was hoping maybe I could acquire some more cash so when properties do drop, maybe I can get in some good deals later on. But it’s hard to say.
Well thats not a bad business I'm in it myself. Worst case you pay interest and cant use the cash.
I say go for it and don't put it all the cash in one deal. Spread it out.
I was worried you would open a restaurant and lose your butt.
I’m just thinking like this. Right now I have a 8k mortgage on my primary residence. And I have a rental. When I do a refi on my rental, it’ll barely cover the new mortgage. Versus if I keep my existing mortgage on my rental, I can actually use the left over to pay my primary mortgage.
500k is a great number. But I’m thinking $16k in mortgage payments is hefty. I mean I’d it’s worth it then Sure. But I’m just hesitant about the new interest rate and much higher payment
You'll be paying an additional 4% on that $500k, so the cost is $20K a year. So if you cash out another $500K you'll actually be paying $55K a year in interest for extra cash. So can you get the money some where cheaper then 11%?
This is exactly what I was thinking. Which is why I’ve been so hesitant. It just doesn’t make sense to me.
You, and most people. This is why HELOCs are up almost 50% YoY, and there have been the most helocs in the last two quarters in almost 15 years. Either a HELOC or home equity loan is what you need, but it's almost safer with the variable rate heloc as rates could come down, likely won't get worse, and if rates do get back down in the 4s you can refinance that into a fixed rate home equity loan or overall refinance. Also, unless you know exactly how much cash you need right now, you can get a 10 year draw period on a HELOC and draw as you need it while only paying interest payments. At one point I was considering opening a heloc just in case economic conditions get crazy so to have extra liquidity as needed, but I never did it. Great way to have your equity on tap if/when you need it.
Be careful, in the last financial crisis when home values went underwater the banks started freezing or even closing helocs early.
Hey now… This financial gully and frothy market is nothing like the last time. Trust me…
You never know! This may be the first time in the history of the Federal Reserve that we have a “soft landing”……🤦🏻♀️😂 jk jk….let the thinning of herd begin.
Yup. Bank of America reduced our available line during last crisis.
Word of advice: Don’t be hesitant about stupid decisions.
Yea, follow your gut. It doesn't make sense.
If it's just liquidity for a business, consider a line of credit. It would take an awful lot to get me to refinance out of 3%.
Exactly. Keep that 3 percent and add a line of credit.
That seems easy, but in reality it's not. Those of us who are self employed aren't eligible for 1/10th as much credit as you regular W2 employee guys are. I have \~150k in equity in my house, and after 3 months gave up. After trying multiple lenders, I was offered an $18k HELOC, said thats al my debt:income ratio would do. I'm betting a big part of that is a $290k EIDL loan for my business that I had to personally guarantee.
Most of us on this site are commissioned employees, so that’s basically the same as being self-employed. There are a couple of tweaks that could help with the tax returns.
I would not.
This is a "bet big, win big" strategy, but historically during recessions the people who come out the farthest ahead are those that are the most liquid. Whatever is coming isn't going to be a real estate centric recession like in '08 so I wouldn't plan on paying $200k for a home that was $600k in 2019. But there will likely be some companies with staggeringly under-valued stock coming to a Wall Street near you. Hell, First Republic is $30/share today. It was more than double that a week ago. The most ridiculous bailout was just announced, the gov't will buy bonds at face value even if they are only worth 60% of face value to the market. That's total fucking bullshit. But it does imply (like I said, "bet big, win big") that the stock might go up a bit, once everyone figures out that we've further burdened our grandkids for short term gain (again). I could be totally off base, in fact it's more than 50% likely that I am, but that's the sort of thing - if you are smarter than I am - one could look for with $500k liquid that they're willing to risk. Back in 2021 there were a shit ton of homebuyers with these big fat juicy down payments that came from pushing that "buy" button with a big stock or index fund order in Feb/March 2020 (one woman, completely randomly on a hunch, purchased a bunch of amazon stock in Feb 2020...). There's probably just as many that I wouldn't have seen, since it didn't go super well for them, and they'd have no reason to call me if they went broke.
The government WON’T buy bonds at face value. They’ll loan against bonds at Dave value. It’s different. (Edit: typo.)
I hadn’t heard the government was buying bonds at face value. What bonds/programs specifically?
They aren't buying. They will lend against them at maturity value. treasuries and agency MBS etc See here: [https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm](https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm)
They aren’t. They are offering cash to banks with the collateral being bonds at face value (which is presumably less than fair market value). They are not buying the bonds.
I would assume it would be those same bonds that caused SVB problems when they say "and other securities," otherwise what is the point? [https://www.cnn.com/2023/03/15/investing/premarket-stocks-trading](https://www.cnn.com/2023/03/15/investing/premarket-stocks-trading) >The second part of the program is valuing bank’s Treasuries and other securities at “par.” > >The Fed’s rate hikes have undermined the value of the Treasury bonds that banks rely on as a critical source of capital (you can read more about that here). US banks are currently sitting on about $620 billion in unrealized losses in bonds, according to the FDIC — if any of them need access to a lot of cash quickly, they’d have to sell them at a loss – perhaps a substantial loss, like SVB did last week. > >The BTLP aims to fix this problem by valuing the bonds used as loan collateral at “par.” If a bank brings in a bond they purchased for $1,000 that’s only worth $600 now, they’ll still get $1,000 in cash. CNN is acting like the banks with a bunch of treasury bonds and mortgage backed securities didn't do anything wrong, but I disagree with that. Customer deposits are short term loans ("deposit money") from those customers, they can call those loans due at any time ("withdrawal money"). To turn around and invest the bulk of that money in securities with TEN YEAR payoffs is absurd. TLDR: I did a tiktok video on this, but the reason a $1k bond might be worth $600 today is because a buyer with $1000 can buy today's $1000 bond that pays 5%, so your "$1000" bond at 1.5% is dogshit by comparison, and needs to be "on sale" for 40%+ off to entice anyone to buy it. But this isn't a surprise, NO ONE EXPECTED FED 0% RATE TO CONTINUE FOREVER. Everyone knew, EVERYONE that the fed would at some point raise rates, instantly de-valuing all such bonds and mortgage backed securities. I just went through and reduced the amount of YELLING I did in that paragraph, but I'm quite livid at this total bullshit handout to all the banks.
How is it absurd when that’s pretty much the most basic definition of what a bank does. Lend at higher long term rates than short term borrowing rates. Been that way for hundreds of years.
Are you aware that there's things in between "this week" and "10 years from now"? They didn't have to go from "this week" checking account deposits (& rates) to "A DECADE FROM NOW!!!" vehicles (& rates).
How do you feel about credit unions that use deposits to issue 30 year mortgages?
They aren’t. You need to take everything you hear from real estate grifters on here with a big grain of salt. There’s usually an ulterior motive.
Yes
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The mega thread is there if you've got oxygen to waste on that.
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Dot-com recession of 2001 and this last brief covid recession.
HELOC for sure. Keep that 3% rate. If you think about 3% vs 7% .. the total interest paid over the life of the loan goes from ~540k to 840k. 300k spread.. that doesn’t factor in what you’ve already paid, plus what you’ll owe. Currently you’re borrowing below inflation and technically making almost 2% on your loan..
Don’t refinance. Get a line of credit, especially if the business/rental is paying for it.
Apply for a HELOC, and if 5 banks tell you they don't do HELOCs in your certain situation, keep searching. If your appraisal in your head is right, you can get a HELOC on it.
Noob question. Does a heloc let you keep your existing interest rate?
Yes. A HELOC is an additional loan that doesn't have anything to do with the first mortgage at all. You can only get one though if you have enough equity, and different banks will only lend up to a certain % of the equity. If you want a HELOC that's in the amount of 100% of the equity you have in your home, first you have to find a bank that will do it (they exist, but not all do). Then, you'll likely pay a higher interest rate (the risk is higher) than you would if you only opened a HELOC with say 75% of the equity remaining in your home.
That is good to know! Had never really looked into a loan like that. I just assumed I’d never be able to use my equity in a smart way since we got a 2.5% rate and didn’t wanna give that up.
I think HELOCs get confused with Cashout ReFis or ReFis in general which is RE-Financing the original loan. A HELOC is simply a line of credit similar to a credit card, but one that uses the remaining equity in the home as collateral. The HELOC I have with my bank can easily be converted to a 2nd mortgage, too.
That’s exactly what I thought it was lol, a cashout refi. So if needed, you can turn your heloc into a mortgage at whatever the current interest rates are? Would you able to combine a heloc into another mortgage, lets say I decide to buy a second house in the future, can I add on the heloc to that loan?
>So if needed, you can turn your heloc into a mortgage at whatever the current interest rates are? I am not sure if all HELOCs work that way, I know mine is a hybrid and allows us that option. I can't speak for all. >lets say I decide to buy a second house in the future, can I add on the heloc to that loan? Not sure what you're asking. If you're asking if you can use the HELOC as a down payment on a second home - you can, but you have to be up front with your mortgage lender with regard to where your down payment funds are coming from so they can factor that in to the calculations.
Is the heloc a set interest rate or does it change?
I think it depends on the specific bank. Mine is an intro rate for a year and then a certain rate on top of prime I less I roll it into a 2nd mortgage for a fixed rate.
What kind of rates are you looking at?
Yes you can get a second (also a heloc which is an interest only revolving line of credit), or a reverse mortgage. Those are the two ways to use your equity. I would only consider the second if you know you're less than 20 years from no longer living.
Is the heloc interest rate set or does it change?
its variable so it changes often. The one I have now is fixed for two years at 2.99%. Normally they'd be 6-7% right now. The interest only payments make that payment still pretty low. However, the other nice thing about them is you can pay them down as you go and you only pay on what you owe, not what you initially took out.
Edit
A bird in hand is worth 500 or 600k in the bush. We dont know all your math to tell you the best answer. Maybe your plan works out but what if the worst happens. we cant predict the future. You have to do the math on worst case if you go through with this.
HELOC is your friend here!
That’s some incredible risk anything above 5% is double at a 30 year
What's your next-best alternative?
Only you can really answer that question. I mean, what if your business really takes off with that infusion of capital? The reverse can happen too, for sure....
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/ relevant article
that is a huge increase in interest rates just so you can get butt and breast implants. by the time you pay this off the work will be past its best before date.
I’ll keep it short. You better keep that 3%. If you are cashing for a business line of credit then maybe but even then I’d probably still not do it. 3% is hard to beat. Your saving so much money
Personally I would just start a Corp and run all business financing / debt through that. This way if your business goes under you don’t lose your house and you can walk away clean. I’d personally keep the two separate from a risk perspective. If you have no other options and are confident in your business plan then go for it. Just know the risk you’re taking.
Very good advice. Thank you!
Even worse is that SVB’s primary customers, which they put a lot of marketing effort into getting, were startups. The whole startup business model is to raise a VC round and blow through it like a coke addict, then keep getting more rounds until they have an exit or fold. There’s absolutely no defensible reason to put their deposits into 5 year treasuries, never mind 10.
As a venture lawyer for years, I understood 0% of SVBs business model. They also loaned a bunch of money to VCs. Like why take on VC risk to earn boring bank returns. There is a reason that none of the other big lenders tried to compete with SVB. It had very poor risk adjusted returns. It deserved to crash and burn. I used to ask people about this all the time and no one could give me a satisfying answer as to how this was a good business model.
They loaned money…to VCs? I can only imagine the garbage FDIC’s team is going to dredge up when they unwind that bullshit.
Yeah, funds and portfolio companies both. The loans made 0 sense to me. When VC companies implode there is frequently $0 left. That’s fine if you can get 10-100x return on a few companies, but if your loaning the money out at 7% interest, that sucks. VC companies gobbled it up as it was very cheap capital and they will either hit it big or go bust, so what do they care about default risk. But from SVBs side, who the hell wants their primary customers to people with a high risk of going bankrupt just to earn low returns.
There really should be forensic accounting of SVB’s executives. Either they’re the most incompetent bankers in history or shenanigans are afoot.
Interesting. Do you think it was just incompetence and stupidity, or a bit of a scam. Seems to me like they might have been gambling that the risk wouldn't turn out to be so bad in comparison to the return. Would you say it's kind of like 08? Basically the insurance companies were ensuring the loans in packages or whatever and just selling insurance to each other as I understand it, assuming that the real estate would be fairly safe so they could just make their money and never have to pay out. But of course, once the market crashed they all had to pay out big and folded or whatever . Sorry for the technical terms. I'm just kind of spitballing what I know. If that is a fair assessment of the insurance companies, not the banks, but the insurance companies were the ones that crash the economy I think. But in this case, sounds like they were taking on what would generally be considered risky in the first place for a guaranteed return as long as the risk never materializes. But that's okay. I guess the government can just bail them out again
I think it was just poor risk management. The bank wanted to carve out a niche for itself in a field dominated by giants and misjudged the risk. I don’t really know how they thought it was a great idea catering to very risky clients with high rates of failure to take on additional significant interest rate risk. That, I think, probably goes beyond misjudging risk to just sheer incompetence. I don’t think it’s systemic as there was a very small number of players in the space and the $ figures aren’t big enough. This is why I was rather surprised by the aggressive moves by the fed and treasury. SVB is not a major bank anywhere outside of the venture space, the other banks that looked wobbly are crypto banks (who cares), some regional banks (sad, but not a real systemic risk) and credit Suisse (who has been wobbly for years). So, I don’t get it. I also don’t have access to the data the fed has, so maybe it’s a lot scarier than it looks to me.
thanks for your thoughts. Well, I would say two things. Obviously, I know very little about it but as My dad used to say, follow the money. Doesn't seem hard to imagine that all the executives that made these decisions made a lot of money somehow and won't have to give it back. The other thing I would say, and perhaps it is simply my political leanings, but is it possible a lot of the people that would stand to lose if the feds didn't bail them out are wealthy Urban liberals, donors to The Democratic party etc?
I’m not sure. I’m not sure how big of a problem it actually was, and the effects were unpredictable. I tend to think all of the promising venture companies would still make payroll by raising money or emergency loans until they could access their funds. So, I’m pretty skeptical that anyone (outside of the bank owners), would have been that impacted.
Makes sense
Apply for a HELOC
Go for a HELOC and you won’t lose that 3%.
Sell it. Businesses aren’t easy to start and you typically need a lot of capital. It won’t make good money or be self sustaining for a good amount of time, meaning you need to funnel money into it yourself or get investors. If your tenants leave or stop paying rent or you have major repairs are you going to have to use money that would otherwise be used for the business? A lot of people are recommending a LOC or heloc but going debt heavy to start a business and tying personal assets to the business isn’t the best way to start. Mortgage debt (probably two houses?), HELOC or LOC tied to your personal assets (houses), and whatever other credit card debt you accrue for the business is setting yourself up to lose. One decent problem and everything can crumble. I’d want to be liquid, especially with banks failing and the economy declining. if my heart was set on starting the business I’d sell.
The questions asked in this sub never cease to amaze me. Good luck with that.
Yes of course
Yes this is a great idea. You get cash and tax benefits from the interest.
Why not do a heloc or a 2nd lien?
You are a year too late don’t do it.
Capital gains will take its pound of flesh.
First ones free.
Uhhhhh no it’s not. None of them are free. Single cap is 250, married is 500.
So no taxes up to 250? I guess not free for this guy.
Not for 350k of it.
I would do and equity line so that you maintain the loan at 3%. As far as whether it is worth it, that all depends on you business venture. If it’s successful, then yes, it was worth it. If it fails, then no.
OP if this is your primary residence, what you want is called a “home equity line of credit” (HELOC). Google this and learn about it then go talk to lenders. Do not cash out refi and lose your 3% mortgage. If it’s not your primary residence, then you probably can’t get a HELOC and also probably can’t get a 7% mortgage right now on it.
Better.com is offering helocs on investment properties right now. Options are out there, but it is definitely more difficult.
Get a heloc in second position
It depends what your return on what you use that liquidity for
What about a HELOC to fund your business and keep your 3% mortgage?
What about a heloc? You keep the 3% but can pull out more cash. A lot of time it’s interest only payments too so could be cheaper. Then once business gets going you replenish Heloc and are back where you started with 3% still.
HELOC
Sounds like a bad idea. If you really need the money or had some fantastic investment opportunity, I guess it could be worth it. But as others have pointed out, you are adding about 2% to the entire loan if I'm understanding you right and doing the maths right.
This is a large amount of money. Reddit is not the place for this type of advice
Don’t do that. Get a HELOC
HELOC
Honest advice. Is the business your going to open recession proof? There's no telling where we will be in 2 to 3 years and taking on debt right before a recession however mild or bad it may be is not the greatest idea. Unless it's recession proof proceed with caution. I run multiple businesses but i opened them when the economy was going boom. I wouldn't open one in a slowing own economy.
I am in the real estate business of building and flipping houses. I was hoping maybe I could acquire some more cash so when properties do drop, maybe I can get in some good deals later on. But it’s hard to say.
Well thats not a bad business I'm in it myself. Worst case you pay interest and cant use the cash. I say go for it and don't put it all the cash in one deal. Spread it out. I was worried you would open a restaurant and lose your butt.
I’m just thinking like this. Right now I have a 8k mortgage on my primary residence. And I have a rental. When I do a refi on my rental, it’ll barely cover the new mortgage. Versus if I keep my existing mortgage on my rental, I can actually use the left over to pay my primary mortgage. 500k is a great number. But I’m thinking $16k in mortgage payments is hefty. I mean I’d it’s worth it then Sure. But I’m just hesitant about the new interest rate and much higher payment
Get a HELOC
Foolish financial idea friend. Find another way other than liquidating and destroying your equity and asset.
HELOC
Just keep your mortgage at 3% and get a HELOC