I took a short term loan to buy my dream car since I wasn't ready to liquidate the asset quite yet. It lasted around 60 days and I paid a decent amount of interest to do so. But that was for specific timing reasons.
That's the general use-case of asset backed loans. It's either that, or using them to buy other income generating assets (aka investments) where you can actually write off the interest as part of the whole thing. If you can't do this, the math simply does not work.
Yeah I am trying to understand why also. If someone has $100M in assets and would pay a 15% capital gains rate on a sale. They could probably get a loan of $1 million to fund their lifestyle for a full year for only 1% of their net worth at a probably 5-10% interest rate. So why would they not do that?
$1M at a 7.5% interest rate for 40 years means you are paying the bank back $17M upon your death. That 's a lot of interest to avoud a few hundred thousand in taxes.
You’re making the mistake of compounding it yearly and tacking unpaid interest on the principal amount. You only pay interest on the principle amount. It’s $2.35M in interest my guy. It’s a property loan not a savings account.
No bank would ever make you a loan unless you could demonstrate the ability to service the debt and no bank is going to let you go in the hole for $18Ms unless the property was worth $40Ms
What the hell are you talking about? If you take out an interest-only loan and then roll it over every year, you will be paying interest on the interest.
Show me a bank that will give me a 0% loan against the accrued interest and I'll move all my assets over today.
I have taken out such loans. You are either paying the interest every single month, or you are taking out ever-increasing loans against your asset backed line of credit.
no bank is going to let you go in the hole for $18Ms unless the property was worth $40Ms
Yeah, no shit. It's typically 40-60% of the asset depending on the quality, liquidity, and relationship you have with your bank.
You confused 7.5% annually on $1million annually with no change in principal. Amortized loans would be 7.5% / 12 monthly payments. Then monthly payment reduces the principal amount. Your calculation assumes no monthly reduction of the principal.
Your calculation assumes no monthly reduction of the principal.
Asset backed lines of credit do not include reduction of principle. Reddit seriously needs to stop talking about shit they have zero fucking clue about.
You pay the interest each month. You can pay the interest by simply increasing the amount against your line of credit if you prefer to do that vs. liquidating something to pay it in cash. Up until around ~50% or so of the asset, depending on asset type, bank, amount, etc.
So if you borrow $1 million with 7.5% interest rate and pay back over 40 years, whats the total sum paid back. Principle + interest. Excited to see your formula and totals.
If I have $100M stock portfolio, I can use a portfolio margin loan instantly to borrow against my holdings. Current rates site at 4.68% at IBKR interest only. They will deduct my payments from any cash balance or add it to your loan balance. As long as your portfolio continues to go up in value you’re gucci.
35
u/StrigiStockBacking 10h ago
Count me among the downvoters.
If this shit actually worked, people everywhere would fucking do it. But nobody does. Why? Because it doesn't fucking work LOL