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The Rich Take Out More Loans Than Ever

The rich are taking out more loans more than ever! Here’s how.

  • ​Using low-interest loans backed by their investments,
  • Rising stocks and rock bottom interest rates have delivered a big perk to wealthy Americans: cheap loans that they can use to fund lifestyles while minimizing tax bills.

Banks say wealthier clients borrow more than ever before, often using securities-based or other nonmortgage loans with an interest rate of less than 4%. Morgan Stanley wealth management has $68 billion worth of outstanding loans for its five-year-old clients, twice as much as five years ago.

Bank of America Corp. B.A.C., -2.69% said it has $62 billion in securities-based loans, dwarfing its book of home-equity lines of credit for a total customer loan portfolio that tops out at nearly 2 trillion dollars. According to the bank’s most recent quarterly filing with the Securities and Exchange Commission (S.E.C.). These types of loans offer borrowers flexible repayment terms as well as low-interest rates, unlike conventional mortgages or car financing when they need cash quickly but don’t want to sell their property on short notice due to market fluctuations; like increasing demand from interested buyers who are willing pay higher prices than what is currently being offered by owners—looking for quick sales themselves before getting priced out completely which can happen under more traditional circumstances.

The idea of borrowing against one’s portfolio to earn more on loan seemed like an excellent way for those with wealthy clients, Tom Anderson included, and the trend was only amplified. When he noticed many advisers around him had started doing this as well, it became commonplace- now you can’t walk into Merrill Lynch & Co without seeing at least a few securities-based loans in your book of business!​

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