Tales From the Vault: Leveraging the Investment Portfolio

This is a story of AMG clients who were retired and owned their own home free and clear. The couple wanted to downsize and move to a nearby house that was about 20% more expensive than their current home.

They made an offer, which was accepted, but they didn’t have time to sell their existing home and apply proceeds to the purchase. The couple was debt averse and knew that taking out a loan secured by real estate would incur fees and costs, including an appraisal, title insurance, recording fees, loan fees and others, all of which would amount to a substantial sum and could take four to six weeks to complete.

So their financial advisor reached out to a banker for options other than a traditional mortgage or a bridge loan. Here’s what they came up with: The clients consolidated their sizable and varied investments into one portfolio, which was used to back a low-cost, short-term loan so the home could be bought without extending or amending the purchase contract.

The loan terms called for interest-only payments, thereby reducing the monthly cost of the financing. The existing home was immediately placed for sale and sold quickly but for less than the cost of the new home. Again, the clients had options: Continue borrowing against the portfolio, pursue a home equity line of credit or take out a traditional mortgage. The couple chose to continue using their portfolio-backed loan, making monthly interest-only payments and allowing them the flexibility to pay down the principal when it suited them.