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Short term loan of 150k

#1
My son needs a short term loan of 150k to buy a house.  As soon as he sells his existing house he will repay the loan.  I have thought of 4 ways to raise the money.  First I could liquidate some investments to raise the money.  I could also take a margin loan on the equities.  A home equity loan would provide me with the money, and finally I could borrow from my whole life insurance policy.
 
Any thoughts?
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#2
I was in a similar situation in the 1980's when I had purchased a new home before my previous home was sold.  The Realtor I was working with arranged a short-term "bridge loan".  That might be another option, but I believe it might be expensive.
 
I suppose I would try to figure out what is the least costly way to do it. If you were thinking of liquidating some equities anyway since the market has gone up, maybe that is a good choice, assuming you can handle the capital gains.  If you have fixed income investments that are not paying too much, maybe that is an option.
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#3
fdhs_runner - I know this is a dumb question but why not get his own loan? Why do you need to be a part of it? That's how most of us do it.
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#4
I did the bridge loan one time. I could "afford" it, it was doable, but as tom says expensive and then......well if something goes awry....selling a home can sometimes stretch out. He would take the bridge loan, which in reality is a HELOC.

I could be wrong but the other loan options are gut churners.

I think it comes down to your personal level and really what % of your AUM $150K is it. Might be a drop in the bucket or 10%+.....
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#5
(11-19-2018, 06:13 AM)fdhs_runner Wrote: My son needs a short term loan of 150k to buy a house.  As soon as he sells his existing house he will repay the loan.  I have thought of 4 ways to raise the money.  First I could liquidate some investments to raise the money.  I could also take a margin loan on the equities.  A home equity loan would provide me with the money, and finally I could borrow from my whole life insurance policy.
 
Any thoughts?

In such a situation, I would take the following things into consideration for the decision:
 
1. Does my decision rock my boat (e.g.: will selling investments cause change in my asset allocation to an extent that a market gain during the period of loan will lead to significant lost opportunity, or put me in a situation where I need money and I don't have anything suitable to sell at that time; will taking a margin loan expose me to margin calls, etc.). If the loan amount is small enough that it represents only a single-digit % of my total holdings, this factor may not be significant.
 
2. Cost of loan. For selling investments - it's the tax on realized gain plus an estimated opportunity loss. For account margin, the interest rate in most brokers can be prohibitive, but there are some where margin loan rate is reasonably small (e.g., IBKR). For other loans, the one-time cost as well as the total interest is the consideration. If there is 99% certainty that the loan will paid off quickly, then the interest rate doesn't matter much and it can be paid by the borrower too.
 
3. "Interest-only" vs. amortized payments. How will the ongoing repayment be fulfilled and whether there is secure fund towards this.
 
4. Likelihood of loan getting extended: If the house-on-sale gets stuck on market (due to seasonal issues, location issues or overall market issues), then this "longer-than-expected" life of the loan will change the trade-off for each solution. If there is even a modest possibility of this, then this should definitely be factored in.
 
Whatever decision you take - all the very best to you and your son.
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#6
I don't have any good suggestions, but I do have another thing to think about. Are you going to charge any interest on the loan? If not, you may still be on the hook by the IRS for imputed interest - https://investinganswers.com/financial-d...terest-530
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#7
Is he new to the existing home, i.e. no home equity or is he under water on this? With home equity, enough to cover the down payment, and with a good relationship with his note holder, he should have no problem with a reasonable bridge loan or some derivative of it. Has he investigated those options?
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