However not discouraged by that fact, some tech folks are known to instead have taken out regular non-mortgage variable rate loans with their RSUs as collateral. So there are folks, who bought a house "all cash" with loans backed by stock collateral that is now worth much less. Those types of loans also have a double-digit APR, which might have been fine if you thought you could flip your house for 30-100% in the near future. In the current housing marking it is like putting everything on black at a casino, it might work out, but it might be also be a complete catastrophe.
Nah not all of them. Margin loans were as low as 0.5% APR, and currently not much higher than that.
IBKR charges 2.33% base rate, reducing to 1.58% for balances over 1 million USD.
Multiple lenders, when I was shopping for a mortgage in October, encouraged me to take a variable-rate ARM with a balloon payment when I mentioned my options. (I declined, opting for a 15-year standard instead.) For the lender, as long as you can refinance in 5 years, the risk is minimal. For a borrower, this structure could easily wipe out one's savings.
There is however a definite problem of people across all income levels living way above their means.
The first time for a refinance and the second time for HELOC. Both times they would only consider my base. Luckily I lived in a relatively low cost of living area and we weren’t talking about that much by todays standards - a $300K refinance and a $160K HELOC a so my base pay was enough.
The third time when I tried to get an investment property, my DTI was too high to qualify based on solely my base. If they had counted my RSU grants even considering the 30%+ YTD decline, it would have been more than enough. I ended up doing a no income documentation loan and paying down the loan by a point. I also had to put 30% down.
For the second one, they still questioned why my stated income for 2022 was much lower than my actual income for 2021. I had to re-explain my compensation structure.
[1] How do you say which BigTech company you work for without saying which BigTech company you work for.
Made the difference between me qualifying and not (for a 10% down jumbo, which was admittedly a stretch).
This is irresponsible in my opinion. (I'm sure some disagree.) Personally, I took the conservative approach where during my home purchase we made sure our income could afford a mortgage. Our RSU's are a bonus and when they come we can pay down our mortgage faster, go on fun vacations, or do all sorts of other things.
Currently, I'm on pace to pay off my 30-year mortgage in 8-10 years by putting half of my RSU's towards my mortgage on top of the monthly payments.
This is not a great idea if you have a 30-year fixed mortgage with an APR below inflation. You're better off not paying it off, and instead setting aside the cash you would have used. Even in like a Series I bond which is currently paying 9% APR.
Money loses value every year, and it's losing value faster than your mortgage is going up in cost. Therefore, why would you pay it off today using money that's worth more, when you can pay it off in the future using money that's worth less?
Especially if you can park your money in something that tracks inflation.
Paying off your mortgage early is one of those things folks are always told is good - it's really not.
That's a free 9%+ return on capital. You're giving up free double-digit returns by paying off your mortgage early.
If you're in tech and paying your mortgage depends on your salary and your RSU's you are not being financially responsible.
It only makes sense if there is a legitimate fear that someone might otherwise waste the money on frivolities - for many people saving and the self control it requires is very challenging.