“I am thinking of buying a home and offset some of the down payment by using gold bullion as collateral for the mortgage. Can you recommend a Bank in the USA that would consider a combo down payment?”
Bullion.Directory’s Ask Ally Service
By Alison Macdonald
Commercial Editor at Bullion.Directory
Maryann is asking something that a lot of Americans with a stack of gold bullion are wondering – can they use their gold as security on loans?
They typically don’t want to sell their gold which they own as a diversification asset – but they want to access some of the value in their stack…
OK Maryann, I’m going to start by answering your second question about banks with an unfortunately blunt and rather short answer:
No.
Maybe 20 years ago (or more like 30) it would fall to the individual bank manager who would decide who got mortgages and how any non-standard deals could be put together.
Back then your friendly bank manager knew you, they knew you were good for the loan and they’d be flexible in helping you get over that finish line.
It wasn’t common – but it was fairly easy – to hand over a commodity such as gold bullion, a stock certificate, or some other easily liquefied asset to the bank and they would either use that as a guarantee on the loan or as cash equivalent for the deposit.
Fast forward to present day and now there are no bank managers involved in the process – friendly or otherwise – in fact there aren’t that many people involved at all, just a computer on a server running a fairly basic automated software.
Zero scope for left-field ideas.
Mortgages are standardized, built for standard deals with standard deposit amounts, standard multipliers and standard risk assessment looking for standard risks. When completed they’re packaged together into a standardized commodity and sold to investors by the thousand.
If there’s nowhere on the screen to enter how many gold bars you have, there’s no option.
So, going directly to a bank and asking them to use your gold bullion as collateral isn’t going to happen.
Not any more.
Enter Gold Collateral Loans
An intriguing concept that has grown in popularity recently is using gold bullion as collateral for a loan. Not with a bank but with a specialist gold collateral loan company.
With the advent of specialized bullion collateral loan companies, which specifically cater to those looking to use their gold holdings as a means to secure a loan, we see a shift in how gold’s liquidity is viewed in the financial world, offering new opportunities for gold investors.
This idea opens a path for gold investors to leverage their assets in a practical way, particularly when large sums of gold (and therefore money) are involved.
Top Rated Gold Collateral Specialists:
Bullion.Directory lists a number of established and trusted specialists in this field and while I cannot recommend a specific company, I have direct experience with CFC Gold Loans and Money Metals Exchange – and they’re both excellent.
But before you go running off to hand over your gold as collateral, lets look at the options a bit more.
Understanding Collateral Loans: The Basics
Collateral loans are a type of secured loan where the borrower offers an asset as security for the loan amount. This arrangement gives the lender the assurance that if the borrower defaults on the loan, the lender can seize the collateral to recover the owed amount.
These loans tend to come with lower interest rates compared to unsecured loans due to the reduced risk for the lender.
Gold bullion, with its inherent value and stability, presents itself as an attractive option for collateral. Its appeal lies in several factors:
- Tangible Asset: Gold is a physical, tangible asset, making it easier to value and liquidate if necessary.
- Market Stability: Despite fluctuations, gold has historically maintained its real-world value over the long term, making it a relatively safe bet for lenders.
- Universally Recognized Value: Gold’s value is universally recognized, which simplifies the process of using it as collateral across different markets and jurisdictions.
- Liquidity: Gold is highly liquid. This means that in the event of a loan default, it can be quickly sold in the market to recover the loan amount.
These characteristics make gold bullion a viable option for collateral loans and a solid option for borrowers looking to leverage their investment without having to sell it.
For those looking to use gold bullion as collateral for a loan, specialized bullion collateral loan companies are the go-to option. As I’ve said, these companies focus specifically on lending against gold and other precious metals, providing a niche service that traditional banks typically just do not offer.
These companies understand the unique nature of gold as an asset and are equipped to appraise and accept it as loan collateral.
They offer tailored loan products that cater to the needs of gold owners, providing more flexibility and understanding of the gold market.
The best-known companies in this sector have very streamlined processes that make obtaining a loan using gold as collateral relatively straightforward.
Requirements for Gold Bullion Collateral Loans
- Type of Gold Accepted: Not all forms of gold will be acceptable. Most loan companies usually only work with gold bullion in the form of bars or coins, primarily from recognized mints and issuers. Some do work with numismatic coins and a few with high-end jewelry or antiques, but these are few and far between.
- Purity and Weight: The gold’s purity and weight are crucial factors in determining its value for collateral. Most of the mainstream companies require a certain level of purity, which is why they only allow commodity type investment-grade gold.
- Storage Conditions: For the duration of the loan, the gold will need to be stored in a secure facility approved by the lender. This ensures that the gold remains safe, insured and minimizes fraud risk.
- Appraisal: A professional appraisal will be required to determine the current market value of the gold. This appraisal forms the basis for the loan amount.
Process of Securing a Loan with Gold Bullion
Using gold bullion as collateral for a loan involves a specific process which will vary slightly from company to company.
- Choose a Reputable Lender: Start by selecting a specialized bullion collateral loan company. Research their credibility, customer reviews, and terms of service.
- Initial Consultation: Reach out to the lender for an initial consultation. This step typically involves discussing your needs, the amount you wish to borrow, and the basics of your gold bullion (type, weight, purity). Do bear in mind most lenders will have a minimum amount for new loans.
- Gold Appraisal: Arrange for a professional appraisal of your gold. The lender may require an appraisal from a certified professional to ascertain the market value of the bullion, or they will appraise in-house. This appraisal will consider factors like the current market price of gold, the purity and weight of your bullion, and any additional historical or numismatic value. At this point they may wish to know the gold’s provenance and other facts related to AML legislation.
- Loan-to-Value (LTV) Ratio: The lender will determine the LTV ratio, which is the amount of the loan compared to the value of the gold. Typically, lenders offer a percentage of the gold’s total value to account for market fluctuations and to ensure coverage in case of default. Typical LTV rates run from 60%-85%.
- Interest Rate Agreement: Discuss and agree on the interest rate for the loan. Interest rates on gold collateral loans may vary based on the loan amount, term, risk and the lender’s policies.
- Gold Storage During Loan Term: Agree on the storage conditions for the gold while the loan is outstanding.
- Loan Terms and Agreement: Review and sign the loan agreement, which should detail the loan amount, interest rate, repayment schedule, and conditions regarding the gold storage.
- Disbursement of Funds: Once the agreement is signed and the gold is securely stored, the loan funds are disbursed to you.
- Repayment and Retrieval of Gold: According to the agreed terms, you will either make regular payments or in some cases a final balloon payment. Upon full repayment of the loan, your gold bullion is returned to you.
- Home Equity Loans: For those who already own property, borrowing against the equity of your current home can be a way to finance a down payment on a second home, or a re-mortgage. This option depends heavily on the amount of equity you have built up.
- Government-Backed Programs: Programs like FHA loans offer lower down payment options, often aimed at first-time homebuyers. These can be more accessible but come with specific requirements and limitations.
- Personal Savings or Investments: Using personal savings or liquidating other investments can be a straightforward way to fund a down payment. This method requires no borrowing but does depend on having sufficient funds available.
- Gifts or Family Loans: Some homebuyers receive down payment assistance as gifts from family or opt for informal loans from relatives. This can be a flexible and interest-free option but is obviously dependent on personal circumstances – and there’s a reason people say don’t borrow from friends or family as if it goes wrong, it can go VERY wrong.
This process allows borrowers to leverage their gold assets for liquidity while retaining ownership, making it a practical financial solution in various circumstances.
Alternative Financing Options for Down Payments
When considering a down payment on a house, there are several financing options beyond using your gold bullion directly as collateral, other than simply selling the gold and using the cash.
To be honest, much of everything comes down to how much you’re borrowing, how much the down-payment is and whether you think property prices will outperform gold for the duration.
If you’ve got $250,000 in bullion and are buying a $700,000 home then by all means using that gold collateral will make a huge difference. If on the other hand you have 3 Gold Eagles, or $5000 in bars, selling them would probably be the only option to get money out of the metal as you would fall below most gold collateral lender’s threshold.
At the end of the day, both gold and a house are ‘real’ assets, so both are going to provide better long-term security than rapidly depreciating cash in the bank.
Selling one to buy the other could end up being the smart move – but provided interest is lower than capital appreciation, keeping both may just be a no-brainer.
Conclusion: Is Gold as Collateral Viable for a Down-payment?
Utilizing gold bullion as collateral for a loan, particularly for significant financial undertakings like a house down payment, presents a unique and viable option. This method stands out for its ability to leverage existing assets without the need for liquidation, offering flexibility and potential benefits not commonly found in traditional financing methods.
While specialized bullion collateral loan companies facilitate this process, it’s crucial to understand the intricacies involved, including appraisal, loan-to-value ratios, and storage requirements.
Comparing this option with other financing methods highlights its unique position in the financial landscape.
For those with gold investments, it offers a practical avenue to unlock the value of their assets, balancing the benefits of gold ownership with the practicalities of modern financial needs.
Alison Macdonald
Ask Ally, is your direct line to gold investment wisdom. Alison “Ally” Macdonald, with her extensive experience and sharp tongue, cuts through clutter to offer honest, insider takes on your gold investment questions.
Need insights or industry secrets? Ally’s ready to deliver, combining professional expertise with a smattering of Glasgow patter. Get ready for straightforward, expert guidance from a one-time gold shill turned good guy. Ask Ally Today
Leave a Reply