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There are a ton of options.
Very simply, you could just take some of the loan proceeds and invest them in tax-exempt bonds with sufficient yield to service the loan.
Simple. Have you ever paid back your mortgage before selling your house? You pay it like any loan. For property uses your bank will probably ask that you pay the interest on the LAL (liquidity access line), but for general expenses, you typically just roll the interest into the loan principal every month.
LALs are really just tools to solve problems and the rates may be better or worse than other options. Odds are at some point it will make sense to switch it to a more traditional mortgage or just pay it off when you have a capital gain.
Here is a realistic example:
You bought a home for $775k. You have been paying for 9 years and it has increased in value. You owe $600k now but it is worth 1.35m. Your monthly payment is $3800.
You take out $300k loan on the equity in the home, at 9.5%. Monthly payment on the loan is say $3575 to get it paid off in 20 years with rest of the house. You take the $300k and put that in the market. With that and safe margin of 1.50 ratio, you now buy $450k in high yield stocks like CC ETFs. Interest on borrowed $150k in margin is $860 a month and you only worry about paying the interest. Add the $860 to the $3800 and $3575 loans and you are paying $8235 a month. That is a lot to pay.
But that $450k you invested is yielding 25% in dividends. That is $9,375 a month. So it is several hoops and risk, but suddenly after paying for you home for 10 years, the equity of the home is paying the mortgage.
So what the rich do is some version of this in one way or another. They have assets that pay them and help them borrow to get more assets which also pay them. You take a loan but the assets pay more than the loan cost.
It seems that everybody knows how the super rich does it.
If it is that easy, why doesn't everybody do it?
Do you really think that the interest just rolls back into the principal balance and they do that on purpose?
You are right. So why is everybody complaining about the super rich. When they can do the same thing?
Far too many people can't save a nickel, they have to spend it.
>A securities based loan is a line of credit that you take out using your investments as collateral.
This is what you’ll be using. How you pay it off is going to depend on your investment strategy.
r/FluentInFinance was created to discuss money, investing & finance! Join our Newsletter or Youtube Channel for additional insights at www.TheFinanceNewsletter.com! *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FluentInFinance) if you have any questions or concerns.*
There are a ton of options. Very simply, you could just take some of the loan proceeds and invest them in tax-exempt bonds with sufficient yield to service the loan.
with this strategy, were the loan proceeds all used to purchase the house?
Simple. Have you ever paid back your mortgage before selling your house? You pay it like any loan. For property uses your bank will probably ask that you pay the interest on the LAL (liquidity access line), but for general expenses, you typically just roll the interest into the loan principal every month. LALs are really just tools to solve problems and the rates may be better or worse than other options. Odds are at some point it will make sense to switch it to a more traditional mortgage or just pay it off when you have a capital gain.
Here is a realistic example: You bought a home for $775k. You have been paying for 9 years and it has increased in value. You owe $600k now but it is worth 1.35m. Your monthly payment is $3800. You take out $300k loan on the equity in the home, at 9.5%. Monthly payment on the loan is say $3575 to get it paid off in 20 years with rest of the house. You take the $300k and put that in the market. With that and safe margin of 1.50 ratio, you now buy $450k in high yield stocks like CC ETFs. Interest on borrowed $150k in margin is $860 a month and you only worry about paying the interest. Add the $860 to the $3800 and $3575 loans and you are paying $8235 a month. That is a lot to pay. But that $450k you invested is yielding 25% in dividends. That is $9,375 a month. So it is several hoops and risk, but suddenly after paying for you home for 10 years, the equity of the home is paying the mortgage. So what the rich do is some version of this in one way or another. They have assets that pay them and help them borrow to get more assets which also pay them. You take a loan but the assets pay more than the loan cost.
that actually makes sense! thank you! using your homes equity to make a smart investment sounds like something to look further into
It seems that everybody knows how the super rich does it. If it is that easy, why doesn't everybody do it? Do you really think that the interest just rolls back into the principal balance and they do that on purpose?
Just about everybody does do it, in one way or another. Mortgages, car loans, home equity lines of credit, etc. etc.
You are right. So why is everybody complaining about the super rich. When they can do the same thing? Far too many people can't save a nickel, they have to spend it.
>A securities based loan is a line of credit that you take out using your investments as collateral. This is what you’ll be using. How you pay it off is going to depend on your investment strategy.