While expensive mortgage US interest rates are unlikely to prevent the wealthy from buying the homes they want.
“There are no bad choices when it comes to deciding how to fund something, there are only bad choices for you,” said TJ Williams.
Financial Advisor and Regional Vice President of Wealth Enhancement Group, New York. “That’s why it’s so important to consider every option separately.”
For wealthy individuals, there are multiple ways to finance large real estate purchases, including alternatives not typically available to other buyers.
All financing options have an impact on your overall financial plan, so you should discuss them with your financial advisors, investment advisors, lawyers and tax experts, Williams said.
Borrowing against investment accounts
Williams said a popular option for those with many assets in investment accounts is to use those funds as collateral for loans.
“If you want to buy a new home before you sell your current home, a secured asset line of credit, also known as a securities-backed line of credit, should be used for short-term financing, such as a bridge loan,” Williams said. says. “The advantage is that you don’t have to sell your investments in a down market or charge capital gains taxes by selling part of your portfolio.”
These loans typically have floating interest rates that change daily. But Williams warns that borrowers need to understand the risks. Especially when interest rates are rising and markets are volatile.
“If markets and portfolios fall, lenders can make ‘maintenance calls. This means that you either need to pay off your loan sooner or invest more in your wealth account. and may end up paying capital gains tax on its sale.”
These loans should only be used for three to six months, Williams said, with a contingency plan to pay off the full amount if needed.
Brian Gaister, CEO and co-founder of Pennington Partners in Houston, says if you want to borrow money for your investment account, shop around at different banks and negotiate the best rates, or ask a financial advisor to shop with you. says it needs to.
A “margin loan”, which is also a loan for your investment, is similar to a pledged asset line of credit, usually offered by a brokerage firm. But Williams said margin loans aren’t often used for property purchases.
“You need an experienced advisor to weigh these options and determine what’s best for your situation,” said Geister.
Geister said interest rates for intrafamily loans taken by one relative from another are set by the IRS, which is usually well below market rates. Most recently, the interest rate on his 30-year loan was 3.38%, compared to about 7% on his traditional 30-year mortgage.
“Not only is the interest rate low, but you also have the advantage of being able to deposit money with a large family,” Geister said. “You can pay off the loan or wait to accrue interest while the house is appreciated.”
Interest rates on jumbo loans can be a quarter or half a percentage point lower than those on 30-year fixed-rate loans, said Matthew Hibler, a loan officer at Cherry Creek Mortgage in Denver.
“Most investors prefer jumbo loans because they can get a good return on a $2 million or $3 million loan,” Hibler said. “For borrowers, jumbo loans are tax-deductible for a portion of the interest they pay. Plus, they offer lower payments over a 30-year term, which means less liquidity is used.”
Hibbler said many lenders offer mortgages up to $3 million, but beyond that you may need a professional lender.
“Jumbo loans can be a problem for many HNWIs, as they have more complex finances than those with traditional W-2 incomes,” Geister said. “It can take a frustratingly long time to get approval, especially if you are a partner in multiple businesses.”
To get the best interest rates on jumbo loans, Mr. Gaister recommended shopping around and transferring assets to a financial institution to qualify for the lowest interest rates.
“Banks that want jumbo loans will offer interest rate reductions of 0.5% to 1%, depending on how much cash you have in the bank,” Geister said. “We shop the banks to find the best debt terms for our clients.”
If you’re buying a multi-million dollar home, Williams says, you may be able to negotiate with the seller to personally finance it with a lower-than-market rate loan.
“For example, if someone sold a house for $2 million and paid $400,000, they would have to pay capital gains tax on the sale,” he said. You may be willing to finance your purchase at 5% with your home as collateral at . There are benefits for
pay cash first
Williams said some people like the idea of owning their own home outright and want to pay cash to eliminate debt. He said. “There may be better ways to leverage your $2 million property for a higher rate of return than selling your home in a few years.”
If you face competition for the house you want to buy, you can always pay cash to finance it after closing, Geister said. , the interest rate will be higher than refinancing,” he said.
Multiple financing options are available, but it is imperative that you meet with our team of advisors to find the best fit for your overall financial plan.
This article originally appeared on mansion global.