Who doesn’t dream of enjoying the Spanish sun in their own country house? More and more people are using their investment portfolio to finance that dream.
Alternative to classic loan
There are various options for financing a second stay. Taking out a classic mortgage loan is the most obvious option. However, there are disadvantages. For example, there is a real chance that you will have to use savings or even cash in part of your investments to pay off the loan. Certainly the latter can be disadvantageous.
Savings yield nothing, but the return on an investment portfolio is potentially much higher. This is how banks came up with the idea of linking loans to the proceeds of a securities portfolio. This is often referred to as the investment loan, the Lombard loan or the alternative loan. In this loan formula, your investments are used as collateral for the loan. The bank analyses the securities account and then attaches a value to it. This depends, among other things, on the risk level of the entire portfolio, the maturity of the underlying investments and the quality. The value of the entire portfolio determines the maximum amount you can borrow.
An investment loan offers a number of advantages. Because you give an investment portfolio as collateral, you do not have to sell it. It may even be possible to pay off the loan with the proceeds of the investments, if they perform well of course. At the same time, there are also fewer costs associated with an investment loan than with an ordinary mortgage loan. After all, there are no notary fees because no notarial deed is required for the loan. Also, the repayment conditions are usually more flexible. For example, there is usually the option of opting for a bullet formula: you pay the interest monthly, but you only have to repay the capital at the very end.
More and more Belgians are being persuaded to borrow money in this way, according to a recent survey by the newspaper De Tijd. Deutsche Bank took out 39% more such loans between January and April than in the previous year and Bank Degroof Petercam also spoke of ‘substantial growth’. All together it concerns thousands of Belgians who thus finance the purchase of a holiday home.
So there are no disadvantages to this credit formula? Certainly there are. First of all, the collateral depends on the evolution of the stock market. If the value of the investments drops sharply – for example, because the stock markets crash – the bank can ask for the collateral to be cleared and deposited or the amount of credit can be reduced.
There is an additional risk for those who choose the bullet formula. While it may be attractive to postpone the repayment of the capital until the final maturity date, this means that the entire capital must be repaid at once. If this is not the case at that time due to a financial setback, the loan cannot be repaid and the bank can seize the collateral.
Not for everyone
An investment loan is not for everyone. To do so, you must already have a substantial investment portfolio. You won’t get there with a few thousand euros in shares or bonds. Just to give you an idea: at Deutsche Bank, clients must already have a portfolio of at least 100,000 euros.
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