“Hey honey, the leaves are changing colors and I can’t handle one more minute of the news. Let’s go for a hike.”
There’s a chill in the air so you swing through the drive-through coffee shack on the outskirts of the tiny town near your favorite hiking trail. Right there taped to the pass-through window is a flyer for an estate sale. “Wow!! Look honey. There’s a cabin getting auctioned off on Mystery Lake tomorrow morning!”
You’ve been talking about a lake house for years. The perfect place for the family to congregate away from stressful lives and busy days. When you close your eyes, you see a long dock and a sunset that makes the water look like it’s on fire. The smoke is rolling from the pellet grill and the little-ones are running in to wash up before a turkey dinner.
Scouring MLS listings on Zillow is a part of your regular bed-time routine. How did you miss this one? The auction is tomorrow and you need to act fast. Who keeps that much cash sitting around? How are you going to fund this on such short notice?
You essentially need a “bridge loan”; something to bridge the gap between this purchase and either the sale of an asset or more permanent financing. You could just sell securities and withdraw funds from your investment account, but that could come with a tax bill.
We have three great solutions to help you take advantage of your exciting new opportunity.
Home Equity Line of Credit
This option allows you to access the equity in your home. The HELOC is obtained directly through a bank and typically carries a low variable interest rate. It may take some time, so it is best to obtain one before you actually need it. This is great to have in place, just sitting there ready to go. It often comes with a checkbook or is linked directly to your checking account for easy use. Might as well ask for largest line the bank will give you because interest is only due on the outstanding balance.
This is the simplest but most expensive option. All it requires is a non-retirement brokerage account and a one-page agreement that the Martin Worley Group will send to you. One electronic signature per owner and you can typically borrow around 50% of your brokerage account value depending on the securities held. For example, if your account has $500,000 balance you may have easy access to roughly $250,000. Rates are higher, but still very reasonable considering the ease and very short time period the loan is planned to be outstanding.
Collateralized Line of Credit
This is a little more difficult than the margin loan but is usually a bit cheaper. Very similar in nature to a HELOC, but instead of home equity, a non-retirement brokerage account is used as collateral. This option is best for larger loans, that are outstanding for longer periods of time. Typically, a minimum account value of $200,000 is necessary, which will provide a line of credit of approximately $100,000. This is also something good to have in place ahead of time, so let’s have The Martin Worley Group get to work on the paperwork if you might need it. A significant downside with this route, is withdrawals from the brokerage account require permission from the bank even if the line doesn’t have an outstanding balance.
The best part about all three of these options? Your emergency fund just got a lot larger.
Here’s a quick chart to help show the differences:
It could be buying a new car and the old one hasn’t sold yet. Maybe it’s a camper trailer, or more often than not, it’s the sale of a personal residence. Let’s plan ahead together, please reach out to ready yourself for your next big purchase!
“In preparing for battle I have always found that plans are useless, but planning is indispensable”
- Dwight Eisenhower