Are there any limits to the amount I can borrow with an asset-backed line of credit?
The size of your line of credit will be limited by the value of the assets you've pledged as collateral and any other restrictions imposed by the lenders. Note that the minimum line of credit amount you can apply for is $100,000.
What can I use an asset-based line of credit for?
Line of credit proceeds can be used for a broad range of purposes, including home renovation or purchase, a vacation, a wedding, a large purchase like a boat, college tuition, or even to cover a large tax bill. Please note that funds cannot be used for the purchase of investments, such as stocks, bonds, or mutual funds.
How are my interest payments calculated?
Interest payments are calculated based on the amount of your line of credit that you have drawn down, multiplied by the interest rate. The line of credit interest rate is a variable interest rate composed of a set spread and a variable component tied to a common industry benchmark rate, such as the Secured Overnight Financing Rate (SOFR). As the benchmark changes, the all-in rate on your line of credit will fluctuate and therefore the calculation of interest payments on your loan will also fluctuate. Interest rates are offered in a tiered structure and will vary based on the amount of the loan commitment. The interest rate you will pay on your line of credit may be higher than the rate you would pay if you dealt directly with the third-party lender; not all banks offer these types of loans directly to the public.
Who's lending me the money?
While Fidelity will help facilitate your line of credit by helping you pledge collateral, your actual loan will be made by one of the lenders with whom we work with, U.S. Bank and Leader Bank. All communications and terms regarding your line of credit, as well as any repayments, will be managed by that lender.
Are there any fees associated with establishing a line of credit?
There are no application fees, origination fees, or annual fees.
What kinds of assets can I use as collateral?
You can use individual stocks and bonds, mutual funds, ETFs, or cash in your core position held in eligible accounts. Note that assets you've purchased on margin or those in retirement accounts like an IRA are not eligible to be used as collateral.
What kinds of financial documents will I need to apply?
In most cases, you will not need to provide additional documentation as part of your application process. When pledging certain types of assets, the lender may require additional documentation in order to make a lending decision.
How is a line of credit different from a traditional loan?
With a loan, you borrow a specific amount and agree to pay it back by a certain time. With a line of credit, you establish an amount that you're able to draw on, which will be based on the amount of collateral you're willing to pledge, and then you draw on that line of credit as you need it.
How is this different from a home equity line of credit?
The biggest difference is what you use as collateral. With a home equity line of credit, you're using the equity in your home, whereas with a securities-backed line of credit you're using eligible assets in your eligible Fidelity accounts. In addition, a home equity line often comes with specific terms governing borrowing and repayment, whereas the required terms for a securities-backed line of credit are generally less stringent, generally allowing you to access and repay funds on your timeline, as long as you maintain adequate collateral in your account to support your line of credit.
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