Fixed Vs. Variable
There are some significant feature differences between our Fixed Rate LeverageLine and our Variable Rate LeverageLine. Here we look at them.
Let’s assume for purposes of argument that you are pledging $800K worth of quality of securities (e.g., UPS or Apple stock). Your maximum loan authorization is 70% for a single stock position (70% LTV — would be 75% at least if the portfolio contained multiple stocks to spread collateral risk around). At 70%, which comes to a $560K line of credit, common for us here at ABN.
The question now comes: Do you opt for a Fixed Rate LeverageLine, or a standard Variable Rate LeverageLine based on 30-Day LIBOR rates? Normally, with fixed-rates you have to take all of your loan allocation and pay interest on all that amount, but we at A. B. Nicholas have used our lending institution clout get our client a $560K loan/line of credit and our client is allowed to pick a figure as low as $250K, while enjoying not the higher rate of a $250K line authorization (typically over 7.2 %) and avail a rate of as low as 5.6% despite the client only takin gout $250.
Fixed Rates on our imaginary $800,000 UPS stock portfolio.
In plain English, here are our current (as of July 11, 2018) fixed rates:
1 Year Retail Rate: 6.1% — ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: TOTAL ALL-IN FIXED RATE is 5.6%
2 Year Retail Rate 6.6% —ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: TOTAL ALL-IN FIXED RATE is 6.1%
3 Year Retail Rare 6.72% —ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: TOTAL ALL-IN FIXED RATE is 6.22%
4 Year Retail Rate 6.74% — ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: TOTAL ALL-IN FIXED RATE is 6.24%
5 Year Retail Rate 6.79% — ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: IS TOTAL ALL-IN FIXED RATE is 6.29%
4 Year Retail Rate 6.84% — ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: TOTAL ALL-IN FIXED RATE is 6.34%
7 year Standard 6.9% — ABN DISCOUNTED RATE EXCLUSIVELY for OUR CLIENTS: TOTAL ALL-IN FIXED RATE is 6.4%
These are today’s rates, if you apply now. If you should choose a fixed-rate LeverageLine at another time, in the future, the rates may change. but you will lock these in if you move now.
Now, you can see that Fixed Rates are definitely higher than the standard LeverageLine Variable Rate, revolving credit line; for the same line of credit as of July 11, 2018, your rate is only 4.85% for your $560 line of credit if you go with the standard Variable Rate LeverageLine
But there’s more. The differences between Fixed Rate Term Loan and Variable Rate LeveraeLines when we compare them:
With your Fixed-Rate LeverageLine:
A) Better interest for a Fixed Rate through A. B. Nicholas than direct through any broker or financial advisor.
Normally a license lender will require you to take all of your $560K line authorization at once, with a Fixed-Rate term loan. However, we built through our LeverageLine a better $560K line interest rate, even though you only plan, say to take out $250K.
B) You must pay interest only with a fixed line. You may not prepay the interest with our Fixed-rate LeverageLine. You pay interest-only monthly, and no principal is payable until end of loan (maturity).
C) Your line of credit has a maturity date; at maturity, you will pay off the principal OR you may roll it into a new term loan.
D) You can convert your Fixed-Rate LeverageLine to a standard variable rate LeverageLine at any time at no cost, at the end of your loan term.
With your Variable-Rate LeverageLine:
A) There is no requirement to take out any particular amount. You can take as little as you want or as much as you want up to the maximum authorization of $560K.
B) You are required to pay interest only on what you have drawn, but you can request to put your interest-only required payments into “deferral status” at any time so you don’t need to pay anything in any given month if you choose to defer (it goes back onto your loan principal). You can pay as much principal as you like in ad advance (Prepayment OK).
C) Want to pay off your line and exit it? With our standard LeverageLine you can to dos at any time. But with our Fixed-rate LeverageLine, you must wait until your line maturity date arrives.
D) Your standard variable-rate line of credit has no maturity date. There is no balloon. There is no required payoff of principal .
E) You can convert your Standard LeveageLine variable-rate LeverageLine into a Fixed-Rate LeverageLine at any time, at no cost.
Which is best for you? That is for you to decide. However, most of our clients choose the variable rate model, because the rates are lower, there is more flexible and you can switch to fixed rate at any time.
Dan Stafford, Partner, A. B. Nicholas
A. B. Nicholas Securities Finance LLC
1629 K St., NW, Suite 300, Washington, D. C. 20036
Tel: 202.379.4744 Ext 1 | Mobile/Text: 240.252.8441