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Can I use Investments as Collateral?

I just invested some cash with my financial planner. They put my money in annuities with a secondary of mutual fund. I receive monthly interest payments. Can I use these investments as collateral on a loan?

Often times your investments may be used as collateral, excluding many retirement accounts, that is. Otherwise there could be serious IRS/tax implications.

The trick is knowing where the investments are, what their value is, and having a lien on them recognized. This applies to the borrower, the lender and the company holding the investments. You the borrower must do some foot work here.

Find a lender willing to jump through the hoops necessary to make the loan. Know in advance, by speaking with your broker/investment company, what is necessary to perfect a security interest in your portfolio. Get the forms and contact information for the lender if necessary. Understand, that because your investment value can go up and down, you will only be able to borrow a percentage of its value. The lender will review the investment's performance and that can influence how much may be borrowed. If the value drops below some agreed upon percentage (loan to collateral value), you may be called to reduce the loan or increase the collateral.

Published on 9/07/07