A home is much more than just a place to live. It’s a place where family can come together, where you can express and refine your taste, and where enduring memories are made. It can also represent a significant portion of your wealth and potentially offer long-term appreciation.
When thinking about home financing, a mortgage often comes to mind. But did you know you may have other options? A Loan Management Account® (LMA® account) allows you to borrow against the value of your pledged investments to provide you with an alternative credit solution.1 An LMA account can give you on-demand access to the cash you need so you can fund a real estate purchase without having to sell your investments to meet the down-payment requirements associated with traditional home financing solutions or to act as a bridge financing until a traditional mortgage can be established. In addition to helping you avoid the tax consequences of selling appreciated investments, keeping your investments in place may help you stay on track towards other goals.
In some situations — such as homes with special characteristics or co-op buildings that have a small number of units —homes aren’t eligible for traditional mortgages. In these instances, an LMA account can provide financing with fewer restrictions. In markets where speed to closing is important, an LMA account can offer access to funds faster than a traditional mortgage.
What’s more, recent changes to the tax law potentially could make an LMA account more appealing than a traditional mortgage. There is a new, lower limit on the amount of mortgage interest you can deduct from your taxes. Under the new law, generally you can only deduct the interest on mortgage amounts up to $750,000 on your principal residence. Consult your tax advisor regarding the deductibility of interest paid on an LMA account.
How does an LMA account work?
Your LMA account from Bank of America is a convenient, flexible way to borrow funds. When you open an LMA account, your total available credit will be based primarily on the combined value of all your eligible assets used as collateral. You can easily access funds, generally within one day of approval. Choose from both variable-rate and fixed-rate loans and manage multiple loans through a single account. Best of all, you can continue to manage your brokerage accounts even though you've used them as collateral, subject to certain restrictions, including maintaining sufficient collateral to support your outstanding loans. There is no annual fee and no minimum balance required after your credit line is established, so you can access funds anytime you may need to. Your Merrill Lynch financial advisor can help you open an account and choose the best loan structure for your needs. Note that securities-based financing involves special risks and is not for everyone.
To learn more, read “Purchase the property you want without selling your investments.”
Risks of LMA borrowing
Securities-based financing involves special risks. You should review the LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.
- A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
- 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 you.
- You are 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 you.
- You 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 you 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 LMA account proceeds may apply under the terms of the loan documents and applicable laws and regulations.
Talk to your Merrill Lynch financial advisor about a broad range of home financing options available through Merrill Lynch and Bank of America.
3 Questions to Ask Your Advisor
- If I need to borrow to buy a home, what are the pros and cons associated with different borrowing options?
- How can I generate liquidity for a home purchase or down payment without disrupting my investment strategy?
- What are the ways I can help expedite funding with a shorter closing period on a home purchase?
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1 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.
Equal Housing Lender