Important financing strategies to consider
The peak home buying season is in full swing for both primary and secondary residences. Whether buying or renovating, determining the best financing solution for your unique situation is a critically important decision. Morgan Stanley’s experience in working with clients is that engaging in a planning discussion in advance of the purchase decision can result in better outcomes.
Important Planning Considerations Ahead of Your Home Purchase and Financing Decision
- Have you considered the rent vs. buy decision? Or, whether this is the right time in the market cycle to be buying a new home?
- How long do you plan to own your home?
- If you are in the market for a new home, have you considered obtaining a pre-approval letter1 to size the amount of your loan and your purchase price and to expedite the loan processing time?
- If you can take advantage of a lower price with an all-cash offer or if you are facing a quick-close requirement, have you considered a securities based loan to facilitate the acquisition? Do you have a restricted or concentrated stock position that you may want to use as collateral?
- Should you consider an adjustable rate or a fixed rate mortgage?
- Do you have a need for liquidity to fund your down payment or to fund your home improvements and new furnishings? Would you prefer to keep your portfolio intact to avoid potential tax consequences2 and transaction costs?
- Have you considered the benefits of consolidating your financial relationship with Morgan Stanley to potentially obtain better pricing for yourself or a family member?3
- Are you certain that your bank has the expertise to evaluate the complexity of your financial situation to ensure you are afforded the best possible solutions?
There are risks associated with using your assets as collateral for a securities based loan, including possible margin calls on short notice. As with all investment strategies, those involving the use of leverage present risks that must be considered. For details please see the important disclosures below.
Planning Ahead of Your Liquidity Needs
We have found that our clients often benefit from a more holistic approach in liability management. A strategic use of suitable debt can strengthen an individual’s ability to meet personal goals and be ready to take advantage of opportunities when they arise —such as when your dream house suddenly goes on the market or you finally decide to create your dream kitchen.
The Right People to Help You Make the Right Choice
Whenever you are faced with a liquidity need, or personal financial goal, understanding the strategic options available to you is crucial. Morgan Stanley Financial Advisors partner with a dedicated Private Banker who is experienced in assisting clients with unique and complex income streams. This Private Banker provides guidance at every step of the process - from helping you select the right residential mortgage solution to navigating you through the loan origination process of traditional mortgages and securities based loans.
If you are interested in learning more about home financing options, or would like to set up a comprehensive liability review, please contact your Financial Advisor who will introduce you to a Private Banker.
1. A preapproval letter, which is subject to conditions, is not a commitment to lend.
2. Relationship-based pricing offered by Morgan Stanley Private Bank, National Association is based on the value of clients', or their immediate family members' (i.e., grandparents, parents, and children) eligible assets (collectively “Household Assets”) held within accounts at Morgan Stanley Smith Barney LLC. To be eligible for relationship-based pricing, Household Assets must be maintained within appropriate eligible accounts prior to the closing date of the residential mortgage loan. Relationship-based pricing is not available on conforming loans.
Morgan Stanley Smith Barney LLC and its affiliates and their employees (including Financial Advisors and Private Wealth Advisors) are not in the business of providing tax or legal advice. These materials and any statements contained herein should not be construed as tax or legal advice. Individuals should consult their personal tax advisor or attorney for matters involving taxation and tax planning.
Morgan Stanley Smith Barney LLC is a registered Broker/Dealer, Member SIPC, and not a bank. Where appropriate, Morgan Stanley Smith Barney LLC has entered into arrangements with banks and other third parties to assist in offering certain banking related products and services. Investment services are offered through Morgan Stanley Smith Barney LLC.
Unless specifically disclosed in writing, investment, insurance and annuity products offered through Morgan Stanley Smith Barney LLC are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, a bank and involve investment risks, including possible loss of principal amount invested.
Residential mortgage loans/home equity lines of credit are offered by Morgan Stanley Private Bank, National Association, an affiliate of Morgan Stanley Smith Barney LLC. With the exception of the pledged-asset feature, an investment relationship with Morgan Stanley Smith Barney LLC does not have to be established or maintained to obtain the residential mortgage products offered by Morgan Stanley Private Bank, National Association. All residential mortgage loans/home equity lines of credit are subject to the underwriting standards and independent approval of Morgan Stanley Private Bank, National Association. Rates, terms, and programs are subject to change without notice. Residential mortgage loans/home equity lines of credit may not be available in all states; not available in Guam, Puerto Rico and the U.S. Virgin Islands. Other restrictions may apply. The information contained herein should not be construed as a commitment to lend. Morgan Stanley Private Bank, National Association is an Equal Housing Lender and Member FDIC that is primarily regulated by the Office of the Comptroller of the Currency. Nationwide Mortgage Licensing System Unique Identifier #663185.
Private Bankers are employees of Morgan Stanley Private Bank, National Association.
Borrowing against securities may not be suitable for everyone. You should be aware that securities-based loans involve a high degree of risk and that market conditions can magnify any potential for loss. Most importantly, you need to understand that: (1) Sufficient collateral must be maintained to support your loan(s) and to take future advances; (2) You may have to deposit additional cash or eligible securities on short notice; (3) Some or all of your securities may be sold without prior notice in order to maintain account equity at required maintenance levels. You will not be entitled to choose the securities that will be sold. These actions may interrupt your long-term investment strategy and may result in adverse tax consequences or in additional fees being assessed; (4) Morgan Stanley Bank, N.A., Morgan Stanley Private Bank, National Association or Morgan Stanley Smith Barney LLC (collectively referred to as “Morgan Stanley”) reserves the right not to fund any advance request due to insufficient collateral or for any other reason except for any portion of a securities-based loan that is identified as a committed facility; (5) Morgan Stanley reserves the right to increase your collateral maintenance requirements at any time without notice; and (6) Morgan Stanley reserves the right to call securities-based loans at any time and for any reason.
To be eligible for a securities based loan, a client must have a brokerage account at Morgan Stanley Smith Barney LLC that contains eligible securities, which shall serve as collateral for the securities based loan.
With the exception of a margin loan, the proceeds from the loans and lines of credit referenced within this newsletter may not be used to purchase, trade, or carry margin stock (or securities, with respect to Express CreditLine); repay margin debt that was used to purchase, trade or carry margin stock (or securities, with respect to Express CreditLine); and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account. The proceeds from a residential mortgage loans/home equity lines of credit may also not be used to make payments on any amounts owed under the note, loan agreement, or loan security agreement.