With rates hovering near all-time lows and everyday life changes due to the coronavirus, now may be an opportune time to consider borrowing to fund your immediate needs
A LOW INTEREST RATE ENVIRONMENT CAN MAKE BORROWING AN ATTRACTIVE OPTION. Do you have current needs that borrowing could help fund? You may find a need for a dedicated office space, playroom or workout area. A new role as a caregiver may require a bathroom renovation or the addition of a wheelchair ramp. Telecommuting may have opened up the possibility of moving to the suburbs where there’s room to grow. Maybe it’s time to enjoy the relaxation and privacy of a vacation home. Perhaps you have upcoming expenses that need to be paid, such as a tuition bill or real estate taxes.
Utilize savings, but think carefully about selling investments
While selling securities to fund goals may seem like your only option, doing so can lock in losses from recent volatility, prevent possible future growth, cause an imbalance in your portfolio and trigger tax consequences. If your savings will not comfortably cover your objective and you believe that liquidating your investment assets may be your only choice, talk to your advisor to see if there may be potential borrowing solutions that align with your financial goals. Taking advantage of a low rate environment may offer benefits such as lower payments1 and a higher monthly cash flow, as well as the ability to restructure or consolidate debt.2 Borrowing may help you maintain liquidity and stay invested for longer-term goals. Along with the potential benefits, it is also important to understand the risks of borrowing (see “Risks” section).
Consider your borrowing choices
Your choices will depend on a number of factors, but a good starting point is deciding what you want to achieve and the collateral you have available.
Loan Management Account® (LMA® account)3
An LMA account from Bank of America is a flexible line of credit that can be used for almost any purpose, including home renovations, debt consolidation, education costs, tax payments, real estate purchases and more.
An LMA account uses your eligible Merrill investments as collateral, giving you easy access to funding with flexible terms/repayment options and a choice between fixed-and variable-rate structures.3
Home equity line of credit (HELOC)
A HELOC from Bank of America is a low-rate, flexible way to help pay for things like home remodels, consolidate higher interest rate debt, tuition and more.
A HELOC uses a portion of the available equity in your home to provide a line of credit that you can access on demand during the 10-year draw period.
Bank of America offers fixed-and adjustable-rate mortgage options to pursue your home purchase needs.2
A mortgage may offer flexible payment and down payment options as well as relationship pricing.
If you’re eligible for Preferred Rewards,4 you could receive additional benefits such as:
- A reduction in the mortgage origination fee, or Diamond and Diamond Honors members can receive an interest rate reduction on a new mortgage when enrolling in PayPlan from a Bank of America account.5
- A home equity line of credit interest rate discount. You may be able to lower you HELOC interest rate by setting automatic payments from your Bank of America account.6
Securities-based financing involves special risks. Clients should review their LMA Loan Agreement and related documents and disclosures carefully and consult with their own independent tax and legal advisors.
Some risks to consider include:
- A decline in the value of collateral assets may require the client to provide additional funds or securities to avoid a collateral maintenance call. Clients can lose more funds than are held in the collateral account. The LMA account is a full recourse loan and the account holder will be liable for any deficiency.
- Bank of America ("The Bank") can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting the account holder.
- The account holder is not entitled to choose which securities in the collateral account are liquidated or sold.
- The Bank can change its collateral maintenance requirement at any time without notice to clients.
- Clients are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
- There may be adverse tax or other consequences to clients if securities are sold or otherwise liquidated by the Bank.
- The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed$100,000. The Bank may demand full or partial repayment at any time, and any commitment may be immediately terminated.
- For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily (due to demand or liquidation by the Bank), may be subject to a substantial breakage fee as determined by the Bank.
- Some restrictions on the use of an LMA account proceeds may apply under the terms of loan documents and applicable laws and regulations. The LMA account cannot be used to purchase marketable securities unless specifically agreed by the Bank.
- Interest rate risk – As a variable-rate loan, interest rates and payments can change. Clients should carefully consider these risks before borrowing.
- HELOC funds may not be used to purchase, carry or trade securities or repay debt incurred to purchase, carry or trade securities.
- Please note, in order to qualify for a HELOC with Bank of America, you must (1) either currently own your house outright with no mortgage payments or have a mortgage serviced by Bank of America, and (2) have a Bank of America checking, savings or personal Merrill investment account; certain Bank of America HELOC clients may qualify to refinance their existing HELOC without the preceding requirements.
No one is sure how long rates will remain low, so now may be the right time to act. If you would like to learn more about your borrowing options and how low interest rates could help you pursue your goals, contact your Merrill Lynch Wealth Management Advisor. Consult your legal or tax advisor for additional guidance on tax implications of financing options.7
1 You are invited to apply. Your receipt of this material does not mean you have been pre-qualified or pre-approved for any product or service offered by Bank of America. This is not a commitment to lend; you must submit additional information for review and approval. If you are refinancing to lower your monthly payment or change from a variable-rate to a fixed-rate loan, you should carefully consider the potential increase in the total number of monthly payments and/or the total interest charges paid over the full term of the new refinance loan — especially for borrowers who currently have loan terms less than 30 years.
2 The relative benefits of a loan for debt consolidation depend on your individual circumstances. For example, you may realize interest payment savings by making monthly payments towards the new, lower interest rate loan in an amount equal to or greater than what was previously paid towards the higher rate debt(s) being consolidated.
3 The Loan Management Account (LMA account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA account agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A. For fixed rate and term advances, principal payments made prior to the due date will be subject to a breakage fee.
4 To enroll in the Preferred Rewards program you must have an active, eligible personal checking account with Bank of America® and maintain the balance required for one of the balance tiers in your combined qualifying Bank of America deposit accounts (such as checking, savings, certificate of deposit) and/or your Merrill investment accounts (such as Cash Management Accounts, 529 Plans). You can satisfy the combined balance requirement for enrollment with either:
A three-month combined average daily balance in your qualifying deposit and investment accounts.
A current combined balance, provided that you enroll at the time you open your first eligible personal checking account and satisfy the balance requirement at the end of at least one day within 30 days of opening that account.
You must have a qualifying balance of at least $20,000 for the Gold tier, $50,000 for the Platinum tier, $100,000 for the Platinum Honors tier, $1,000,000 for the Diamond tier and $10,000,000 for the Diamond Honors tier. Private Bank clients qualify to enroll in the Diamond tier, and may qualify for the Diamond Honors tier based on their qualifying Bank of America, Merrill, and Private Bank balances. Refer to Personal Schedule of Fees for details on accounts that qualify towards the combined balance calculation and receive program benefits. Eligibility to enroll is generally available three or more business days after the end of the calendar month in which you satisfy the requirements. Benefits become effective within 30 days of your enrollment, or for new accounts within 30 days of account opening, unless we indicate otherwise. Certain benefits are also available without enrolling in Preferred Rewards if you satisfy balance and other requirements.
5 The origination fee reduction and/or interest rate reductions are offered to clients who are enrolled or are eligible to enroll in Preferred Rewards, based on their asset tier at the submittal of a loan application for a new purchase or refinance loan (for co-borrowers, at least one applicant must be enrolled or eligible to enroll). Amount of the origination fee reduction ($200 for Gold tier, $400 for Platinum tier and $600 for Platinum Honors tier) and the interest rate reduction (0.250% for Diamond tier, 0.375% for Diamond Honors tier) are based on the asset tier at the submittal of the mortgage application and are not subject to adjustment after the application is submitted. The origination fee reduction will not exceed the amount of the Lender Origination Fee. In order to receive the full Diamond and Diamond Honors interest rate reduction (0.250% for Diamond and 0.375% for Diamond Honors tier) you must have an eligible loan (most conforming and nonconforming loans) and enroll in PayPlan using a Bank of America deposit account at least 10 days prior to loan closing. If PayPlan enrollment is not completed 10 days prior to loan closing, or if the loan is a product ineligible for PayPlan (like FHA loan products and PrimeFirst®), you will receive a 0.125% interest rate reduction benefit for Diamond and Diamond Honors tiers. For adjustable rate mortgages (except PrimeFirst), the discounts are applied to the interest rate only during the initial fixed-rate period. For PrimeFirst adjustable rate mortgages, the discount is applied to the margin and cannot reduce the margin below 0%. Eligibility will be determined three or more business days after the day the requirements are satisfied. Some reward benefits cannot be combined with other offers. All mortgage interest rate reduction offers are subject to a maximum interest rate reduction limit. For details on requirements, visit the Preferred Rewards section of the Personal Schedule of Fees. Benefit is non-transferable. For details on requirements, visit the Preferred Rewards section of the Personal Schedule of Fees. Benefit is non-transferable.
6 THome Equity Line of Credit (HELOC) interest rate discounts are offered to clients who are enrolled or are eligible to enroll in Preferred Rewards, based on their rewards tier at thesubmittal of home equity application (for co-borrowers, at least one applicant must be enrolled or eligible to enroll). Amount of discount (0.125% for Gold tier, 0.250% for Platinum tier, 0.375% for Platinum Honors tier, 0.625% for Diamond tier and 0.750% for Diamond Honors tier) is based on the rewards tier at the submittal of home equity application and is not subject to adjustment after the application is submitted. Eligibility will be determined three or more business days after the requirements are satisfied. For details on requirements, visit the Preferred Rewards section of the Personal Schedule of Fees, available at bankofamerica.com/fees. Benefit is non-transferable. Preferred Rewards home equity benefit can be combined with certain other home equity interest rate discounts.
Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.