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Comment by weird-eye-issue | Hacker News Reader

You're mistaken - not all types of loans require you to pay towards the principle. Google pledged asset line

I googled a bit, it looks to me that pledged asset lines, typically require you to pay off the capital.

There are loans marketed as interest only, but my understanding is that even with these loans the payment of the capital is deferred to the end of the term, not that you don't have to pay it back at all.

There are annuities, a financial instrument where the seller receives a lump sum and then pays back a fixed amount in perpetuity but I think only insurance companies sell these.

I think the most likely scheme is what the other comment is suggesting, refinancing the loan repeatedly

No, there is no "end of term". You just have to pay the interest every month. They can ask for the principal back at any moment though but by the nature of the loans if that happened you'd sell your stocks to make good on it. But in practice that would only happen if there is a sharp decline in the underlying assets so if you only borrow like 30% of the value then you are generally fine. Obviously there is risk involved since this involves the stock market and borrowing money.

> not that you don't have to pay it back at all.

That's exactly how they work. As long as you keep making interest payments, and the value of the asset you took the loan against remains above a pre-defined threshold, you never need pay back the principal. The idea being that you invest the money you borrowed and earn a profit on the difference between the interest payment and your investment return. And the interest payment itself is tax-deductible because you borrowed to invest. Neat trick, right?

Btw, this is a power also available to ordinary people, in the form of a HELOC.

Is that true though? "Ordinary people" also have to pay additional fees (ex. Mortgage insurance), have higher interest rates, and have access to fewer high-interest investment opportunities.

I mean, I'm glad I didn't HELOC my way to a few Bitcoin last month, so maybe it's best we leave these tricks to the rich folk anyway.

They sell your assets if you don’t pay the principal though, which would trigger capital gains.

Only borrow half of what they allow you to. Don't borrow the full amount. In that case it would require more than a 50% drop before you run into issues.

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