Traditional loans can be expensive…there may be a smarter way.
If you are considering purchasing a new home, a hybrid approach may help you manage costs while
keeping your investments intact.
Instead of the traditional route, you may be able to instead structure the purchase like this:
- Finance the first $750k financed with a traditional mortgage (potentially tax-deductible interest)
- Finance remaining amount using a box spread lending strategy
Potential benefits:
- Possibly lower your overall borrowing costs
- No capital gains realized if investments are not sold
- Your portfolio can potentially remain invested
- Possible tax advantages
- Could possibly lower your monthly payments
Potential risks:
- Market risk: If the portfolio used to support the box spread declines significantly, additional
capital may be required to maintain the structure
- Liquidity risk: Box spreads rely on options markets. Early exits or adjustments can be less
straightforward than a bank loan
- Interest rate considerations: Changes could adjust the effective rate if adjustments are needed
- Margin risk: if the value of your collateral falls, you may need to add cash or liquidate securities
- This strategy involves derivatives and requires precise execution, monitoring, and experienced
oversight. Not suitable for all investors.
A hybrid approach may help you maximize tax efficiency and potentially minimize your cost, all while
helping to keep your financial plan on track.
Noah Ellison, CFP®, MBA
Helping you build, protect, and create a legacy.
Retirement Planning Solutions, LLC is an SEC registered investment adviser. SEC registration does not
constitute an endorsement of Retirement Planning Solutions, LCC, by the SEC nor does it indicate that
Retirement Planning Solutions, LLC has attained a particular level of skill or ability. This material
prepared by Retirement Planning Solutions, LLC is for informational purposes only. It is not intended to
serve as a substitute for personalized investment advice or as a recommendation or solicitation of any
particular security, strategy or investment product. Options involve risk and are not suitable for all
investors. Trading options can result in the loss of the entire investment and, for certain strategies,
losses may be unlimited. Investors should understand the characteristics, risks, and obligations of
options before trading. Prior to trading, investors must review the Options Clearing Corporation’s
Characteristics and Risks of Standardized Options (ODD), available from your broker or the OCC. Past
performance does not guarantee future results.
Advisory services are only offered to clients or prospective clients where Retirement Planning Solutions,
LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered
by Retirement Planning Solutions, LLC, unless a client service agreement is in place. This material is not
intended to serve as personalized tax, legal and/or investment advice since the availability and
effectiveness of any strategy is dependent upon your individual facts and circumstances. Retirement
Planning Solutions, LLC, is not a legal or accounting firm. Please consult with your legal or tax
professional regarding your specific tax situation when determining if any of the strategies mentioned
are right for you.