If you own a house you could probably leverage this to some extent yourself.
That’s a mortgage. Most people use it to pay for the house itself, but you are free to use the money in other ways if you already own the house. It’s probably the only leveraged asset many people own, and the interest rate isn’t particularly low at the moment, but it’s the same thing as getting, say, a line of credit against your yacht.
It’s called a secured loan. And a house secured loan (aka mortgage) isn’t as good as a stock secured loan.
Stock secured loans rates were basically zero for quite a few years. I think this is why all the venture capital suddenly dried up. Both owning a stock AND taking out a loan based on that stock at 0.25% APR is an insane deal. A year of interest on a million dollars is $2,500. And the stock you’re holding will outperform that. After a few years you just sell a bit of the stock to continue paying the interest of the loan.
Now that the interest rates are 6-7% things are different. Suddenly your yearly payment on that million dollar loan is $65,000 instead of $2,500. And your stock may not make 6% this year to pay for it.
It’s kind of a miracle this return to reality didn’t cause more of a collapse.
That’s a mortgage. Most people use it to pay for the house itself, but you are free to use the money in other ways if you already own the house. It’s probably the only leveraged asset many people own, and the interest rate isn’t particularly low at the moment, but it’s the same thing as getting, say, a line of credit against your yacht.
It’s called a secured loan. And a house secured loan (aka mortgage) isn’t as good as a stock secured loan.
Stock secured loans rates were basically zero for quite a few years. I think this is why all the venture capital suddenly dried up. Both owning a stock AND taking out a loan based on that stock at 0.25% APR is an insane deal. A year of interest on a million dollars is $2,500. And the stock you’re holding will outperform that. After a few years you just sell a bit of the stock to continue paying the interest of the loan.
Now that the interest rates are 6-7% things are different. Suddenly your yearly payment on that million dollar loan is $65,000 instead of $2,500. And your stock may not make 6% this year to pay for it.
It’s kind of a miracle this return to reality didn’t cause more of a collapse.