Month: June 2019

Borrowing to invest?

Define the risk profile

Is taking out a loan to invest a good choice? And where can you apply for such a loan? To answer the first question: it is risky to borrow money for an investment. Banks therefore work with a risk profile. You must indicate in advance what risk you want to run with your investment. In this way it is clear to both parties (the bank and you) where you want to invest the money.

By answering a number of questions online, your choice is recorded. For example, you may be asked what your main objective is to invest? Is that just capital growth or is it a necessary supplement to income? How do you react in the event of a sharp fall in prices? What loss are you willing to accept? A portion of your money or all your stake?

Bitcoin

In 2010 someone paid 10,000 Bitcoin for two pizzas. If you consider that a single Bitcoin now costs more than $ 15,000 …. You can invest in the Bitcoin. Want to read more about buying Bitcoin, Ethereum and a wallet (to put in the Bitcoin).

Securities credit

With a securities credit, your shares are given as collateral to the bank. As a result, the bank has certainty that they will get back a certain amount of the borrowed money. As long as the value of the shares is higher than the loan, nothing is wrong. However, if the prices fall and your securities portfolio is worth less than the loan, the bank can signal that money needs to be added. If you cannot deposit additional money, the bank can decide to sell the securities portfolio (in part). It is quite possible that you will be left behind with a considerable loss.

How much can I borrow to invest?

This depends on your personal situation. First of all, your spending space is important. Are you single or do you have a family? What is your source of income? Payroll service, benefit or benefit? Do you have a rental house or a house for sale? Does your partner also have income and is this calculated to apply for a loan? If you have a large spending margin, the interest on the loan can be low (5%). If it is less easy to pay off, the bank runs a higher risk. You have to pay a higher interest rate that can rise to more than 10%.

After a few years with credit spreads housing above 4% -5% is time for the bank to make downward revisions of the spreads in an attempt to attract new customers and re-grant credit.

In this article, we will introduce you to some factors to consider in choosing your bank. To help us, we’ll consider a hypothetical simulation.

Type of property

To make your housing credit simulation you must provide your personal data and some data concerning the business. In particular, the value of the deed, the estimated value of the valuation, the value of the loan and the desired term (the latter may vary to simulate different installments).

One of the most important factors to consider in the simulation is the Financing / Guarantee item, as you can see in the table below. In most banks, this heading is the main indicator for determining the spread. So, if you want the best spread for home loans you should aim to have as low a rate as possible.

According to this indicator, we have a spread of 1.65% for a loan of EUR 100,000 and an assessment of EUR 120,000, right.

Two Questions About the Housing Financing / Assurance Ratio

• What happens if the Financing / Guarantee ratio falls, that is, if the valuation is well above the expected value?
• And the opposite, that is, if the assessment is lower than the predicted values.

These questions are pertinent even because in the generality of the times and whenever the value of the evaluation varies in the downward direction. That is, it is verified that the value is lower than expected, there is an update of the financing guarantee ratio and consequently the spread.

What happens is that after the client has borne burdens with the request for housing credit and appraisal and see their credit become more expensive, they end up accepting the new conditions because they do not want to start all over again in another bank. Therefore, it is important to know the consequences of such a change, as these may influence the preparation of your budget.

Similarly, anticipating the possibility of trading if the valuation value is significantly higher than the amount predicted is an important step in the simulation of housing credit. The majority of banks do not make any changes in the spread in the downstream direction of the market even if the risk conditions of the operation have significantly improved. Therefore, it is prudent to provide data at the time of the simulation which gives it a margin of safety in case of a potential change.

What to do to avoid these commissions?

There are several banks that do not charge this type of commissions. It is only natural that with the progress of the process that has to be borne by the committee opening the dossier and the evaluation committee. Despite this, there are banks that exempt some commissions.

A study and monitoring of a mortgage lending process can help you save several hundred euros, not only in commissions as in interest and in the premium of various insurance. And best of all is that this process does not have any cost. Why not submit your case and see how much you can save?