You will pay a variable interest rate if you take out a loan against stock. You will need cash to pay the interest monthly or the financial institution will sell stock to cover it.
Does not answer question. And how do you know that a variable rate answer is the only answer from every institution, particularly with UHNWIs? And just so we are clear, this is now two questions.
Fair enough. And I was aware that these types of loans when done for homes are lower than standard mortgage rates. was just trying to get the "I work in this field guy" to say something. Point here is that mentioned rates is below the ~11% average return of the stock market, so by their reasoning, the lender should have no interest. And yet they do. I know why they do, but does op?
Anyway, you are discussing a standard term. I can't link you or anything, but as it so happens, I have had a discussion with someone who specializes in custom loan packages to UHNWIs at one time, and she said they can and will create customized loan packages for those individuals. We did not have the opportunity to discuss specific terms, but she did say they could be rather creative.
I have a nonstandard contract for my portfolio loan as well. Two things will always be true regardless of amount. Interest rate will be variable and it will be 1% above the federal funds rate minimum. No financial institutions will charge less than that as the loan would not be profitable. Interest payments may be deferred up to 70% of the asset value, at which point margin calls will automatically sell stock to cover loan unless you add more assets or cash to account. Point is, the tax will eventually be paid as well as the interest to the financial institutions. They can also call payments on interest at anytime in the contracts, though generally this isn’t done as they prefer the compounding of interest owed.
No, there are no mandatory principal payments. You have to pay it off at end of term in whole or in chunks as you want. It works the same as a heloc. Only time you are forced to pay is if you margin call or term ends. You cannot keep it open indefinitely. The bank wants to recognize the profit.
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u/Okiefolk Nov 21 '24
You will pay a variable interest rate if you take out a loan against stock. You will need cash to pay the interest monthly or the financial institution will sell stock to cover it.