How do I make this work?

6 Replies

I have a local credit union that will loan money to me at 2% for a term of up to 20 years. The only caveat is that i have to have an equal amount in an account with them as collateral. I feel like this could be a great opportunity, but I am unable to connect the dots and find a way to use it in my investing. Anyone got any ideas??!! And for clarification if they loan me $100k I need to have $100k in an account with them that I cannot use, since it is collateral.

@John Roeder will they do that for a cash value life insurance policy? That's the only way I can see if working for you. If you already has a cash value life life insurance policy in place that should be making you around 5% then if they loan it back to you at 2% that'd be great

Waste of time. If you have $20,000 in the bank,, why would you borrow $20,000 at 2% interest? As @Jason Dillard points out, all you're doing is paying the bank 2% interest to hold your money.

Originally posted by @John Roeder :

I have a local credit union that will loan money to me at 2% for a term of up to 20 years. The only caveat is that i have to have an equal amount in an account with them as collateral. I feel like this could be a great opportunity, but I am unable to connect the dots and find a way to use it in my investing. Anyone got any ideas??!! And for clarification if they loan me $100k I need to have $100k in an account with them that I cannot use, since it is collateral.

 It all depends on whether or not they are paying you interest on your deposit. You didn't mention that. Banks don't usually let the interest rate arbitrage work in favor of the customer. They raise deposits by offering a low rate and then they loan it out at a higher rate. 

If the bank was paying you 2% on your deposit and you could borrow at 2%, then whatever you do with the borrowed money is a bonus. The interest expense on the loan would lower the taxable income on your investment. This would be better than simply using your money to make the same exact investment.

A high cash value life insurance policy is the better solution to accomplish this. It is possible to put your money to work in two places at once with a positive interest rate arbitrage, and with the life insurance death benefit too.