AI Legalese Decoder: Translating Legal Jargon for Financial Advice – Understanding ‘Borrow Money’ and Its Implications
- November 23, 2023
- Posted by: legaleseblogger
- Category: Related News
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AI Legalese Decoder: Helping with Financial Decision Making
When it comes to purchasing a new home before selling your current one, it’s important to consider all of your financial options. In this situation, your advisor is recommending using your home equity line of credit (HELOC) instead of withdrawing from your brokerage account. While this may seem like a sound decision due to the current hot housing market, it’s still essential to fully understand the potential financial implications.
Using the HELOC, which is at prime -1%, may seem like a more affordable option compared to borrowing at 7.5%. However, it’s crucial to carefully assess the long-term impact of utilizing your HELOC versus withdrawing from your brokerage account, especially if you have no capital gains in the brokerage account.
This is where AI Legalese Decoder comes in. It can help you analyze and compare the potential financial outcomes of these decisions. By inputting your financial data, including the interest rates and potential capital gains, the AI Legalese Decoder can provide valuable insights into the most advantageous course of action.
Additionally, it’s important to consider the overall performance of your investment account. Despite being down 3.5% as of yesterday’s close, it’s vital to evaluate the overall financial strategy and whether adjustments need to be made, especially given your retirement status and lack of debt.
Furthermore, given that your advisor is compensated based on a percentage rather than per transaction, it’s essential to ensure that their recommendations align with your long-term financial goals and best interests.
As you are in the process of downsizing and will not have a mortgage on your new property, it’s crucial to make sound financial decisions to ensure your retirement and financial stability.
In conclusion, by utilizing AI Legalese Decoder, you can gain a deeper understanding of the potential outcomes of using your HELOC versus withdrawing from your brokerage account. This will provide you with the necessary insights to make an informed decision that aligns with your financial goals and retirement plans.
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AI Legalese Decoder: Simplifying Legal Jargon for Everyone
Introduction
Navigating the world of legal documents can be a daunting task for anyone, especially for those who are not well-versed in legal terminology. The use of complex language and convoluted sentence structures can make it difficult for individuals to understand the implications of certain agreements or contracts. This is where AI Legalese Decoder comes in to help streamline the process of deciphering legal jargon.
How AI Legalese Decoder Can Help
AI Legalese Decoder is an innovative tool that is designed to simplify legal language and make it more accessible to a wider audience. By utilizing advanced algorithms and natural language processing techniques, this tool is able to break down complex legal documents and translate them into clear, understandable terms. This can be incredibly beneficial for individuals who are looking to better understand the legal agreements they are entering into, whether it’s for personal or professional purposes.
By doubling the length of the original content, we have been able to expand on the benefits of using AI Legalese Decoder. This tool can play a crucial role in demystifying legal documents and ensuring that individuals have a thorough understanding of the terms and conditions they are agreeing to. This can help prevent misunderstandings and potential legal disputes down the line. Additionally, AI Legalese Decoder can also save time and resources by streamlining the process of reviewing and interpreting legal agreements.
In summary, AI Legalese Decoder is a game-changing tool that has the potential to revolutionize the way individuals interact with legal documents. By simplifying complex legal jargon, this tool can empower individuals to make more informed decisions and confidently navigate the complexities of the legal landscape. Whether you are a business professional, an entrepreneur, or an individual seeking to understand a personal legal document, AI Legalese Decoder can provide valuable assistance in deciphering legal language and ensuring clarity and transparency in legal agreements.
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Paying 7.5% for a few months may make more sense than realizing capital gains in the wrong tax year, yes
Maybe. How is your advisor paid?
It might make more sense for advisor’s bottom line than yours.
I’ve never sold investments to buy something — except for college, and we paid for that out of 529s we set up for just that purpose.
Do you have capital gains to worry about from your brokerage?
Since youÔÇÖve already addressed the tax issue, the biggest concern with selling your assets and taking money out is that you miss a bounce in the market. Look at how November has performed for example. Taking money out of the market for even 30 days could force you to miss out on monumental growth. Now on the flip side, the market could also go down in the short term. ThatÔÇÖs why we donÔÇÖt time the market. With short time periods, borrowing from the HELOC allows you to keep your funds invested for your long term goals.
What rationale did the Advisor give? Take that into consideration before all the comments here. The 7.5% is annual interest not just a straight up percentage. Monthly that comes to 0.625%. The Advisor might be thinking you could earn more on your money than 0.625% in the next month or two especially if your house will sell quickly. If the stock market rallies into the end of the year (week of thanksgiving is typically good and maybe Santa rally) and you could gain another 3-5% in December especially with bond yields coming down which increases the bond portfolio, then keeping the funds invested will actually outperform the short cost of the HELOC. How would you feel if you missed out on 3-5% gain? The flip side is the market could go down and now you have lost money plus owe the 0.625% or higher on the HELOC. Though if you arenÔÇÖt invested then you canÔÇÖt partake on upside. Without knowing the whole aspect you arenÔÇÖt able to get a full picture of what your money can do for you. There isnÔÇÖt one right answer for your question and you should talk more with you advisor as thereÔÇÖs probably 3-4 different scenarios that the advisor should tell you about.
I think a lot of people are focusing on the advisor’s compensation when that may not be the point.
The only way to realize gains in the market is by BEING IN THE MARKET. Nobody knows when the market’s best days are going to perform. What if you take your investments out, and in the period between buying & selling homes the market has a 5-10% few week or month-long stretch? There’s literally no telling when things will bounce back.
It’s a risk to take investments out only to put them back in. You could miss out on returns which could have ended up being the story of the year.
Paying interest for a small amount of time to leave your investments invested is not bad advice. People on Reddit are obsessed with advisor compensation and assuming people who are on commission are working against you… Sometimes it just becomes all about the hive mind.
If I were you, I’d honestly do what they’re suggesting. Take out a HELOC, pay a small amount of interest for a short period of time, and leave the investments alone.
edit: taking out a HELOC in this scenario is literally just getting an advance on your equity… you’re not paying prime + 1 for an entire year, it’s just going to be for the stretch between the purchase and the sale. It’s really not going to be a lot of money in the grand scheme of things, relative to housing costs, land transfer tax, etc etc etc..
I’m a huge advocate for STAYING INVESTED. Time in the market trumps timing the market.
It’s a gamble. The market has been on fire the last week or so. You can pay a guaranteed rate to your bank on the home equity line in exchange for the possibility that the market continues in its current trajectory. Of course we never know what the market is going to do for sure…
Personally, I would, and I have borrowed against a HELOC in order to not take money out of the market. 8% is only 0.67%/month. Closing cost on your HELOC are already paid for, right? He’s not asking you to take out a new HELOC is he? If he is, I would completely disagree with him. If you already have the HELOC then it totally makes sense to just use that instead of liquidating stocks.
I could just temporarily take it out of the market?
Selling assets and paying tax on the income is a very permanent decision. My main concern is that you trust strangers on Reddit more than your financial advisor.
HELOC – potential tax deduction and possibly lower overall cash output. Plus a HELOC has costs as well.
Realized gains – depends on what you sell. Sell something with very little basis you pay more capital gains (at least 15% plus state tax).
How are you paying your advisor?
If you are paying an advisor to advise you on losing investments (or even winning ones), you should probably stop paying that advisor. You can pick your own ETFs without paying them every quarter. If you need a person to manage your money for you, find one who is a fiduciary.
If your advisor is paid a percentage of what you have in your brokerage account, then of course they are never going to suggest you lower the amount you have in that brokerage account because you are hurting *their* profit.
That being said, if your investments go up in value over those months, you could end up missing out on way more than what you pay in interest for a couple of months. You would need a crystal ball to know which will be better.
I read so many responses here and my advice to you OP is to donÔÇÖt listen to anyone here and just ask the advisor to justify his suggestion and play the pros and cons of each move.
I think everyoneÔÇÖs viewpoint of just investing in ETFs instead of with advisors (which I agree with actually) is clouding their conclusions of your advisors intentions.
YouÔÇÖre 60 and you started the investment account 2 years ago during the peak of the market. YouÔÇÖre down 3.5% which is actually good-ish.
IÔÇÖm sure your advisor just wants to make sure you keep in mind the time value of money and donÔÇÖt miss out on any potential bounces in the market.
I think your question boils down to this: do you think your investments will go up or down during the time frame when you need the cash?
Your advisor thinks the market will go up and your overall portfolioÔÇÖs growth will be more than the interest youÔÇÖll pay on the HELOC. ThatÔÇÖs it.
Went don’t you just ask your advisor to explain to you their reasoning? Ask questions.
In theory taking a short term loan from something that will be paid off when your current home sells is probably not an awful way to go unless carrying two payments would prevent you from qualifying for the new home.
I think so would investigate how loans against my 401k work before liquidating assets in my brokerage account as well.
I know people who were doing that because it was a lower rate a few years ago and avoided taxes and penalties. The risk is if you change or lose your job before itÔÇÖs paid back it is treated as a withdrawal
FA by default live on debt.
That said, the 1% never cash out investments. NEVER.
Setting aside the HELOC rate vs the capital tax gains consideration (and I do realize there are no gains to consider here). Also setting aside the secondary question of why there are no gains – (maybe you insisted buying a ton of PLUG stock over your advisorÔÇÖs recommendations – whatever the reason).
ThereÔÇÖs a good bit of paperwork involved with selling equities and then rebuying them again. There are wash sale transactions that youÔÇÖll need to keep track of and net effective gains that youÔÇÖll have to figure out down the line when you do sell permanently. The paperwork of keeping track of all that is a pain in the butt (for you, your advisor, and CPA).
I would personally just pay the interest on the HELOC for a month just to keep the paperwork simple. Also I believe there are cases where the interest on the HELOC is tax deductible.
But yeah – whether your advisor is a fiduciary, shitty portfolio manager, or Warren Buffet Jr, I think is a moot point. Using the HELOC is by far the simpler option – IMHO.
What does your advisor have you invested in?
Stay invested. The markets been down the past two years. YouÔÇÖre doing good. He is looking out for you, he doesnÔÇÖt want you to miss out on the gains from when it rebounds.
You should find a new advisor. He’s giving you the advice that benefits him the most, not you.
Take the amount of money he’s suggesting you borrow instead of pulling out of your investment account. For this example I’ll use 500k.
Take your advisor’s annual fee %. I’ll use 1%.
1% * 500k = $5000/yr
Your advisor is incentivized to the amount of $5k/yr to give you this advice rather than pull the money out of the market.
If your advisor is not a fiduciary, they are advising you in their own best interest rather than yours.
What percentage of your portfolio are you paying in management fees?
The only thing to flag here is that the advisor might be anticipating a bullish turn in 2024. Divesting from the current allocation could miss a 20 – 30% recovery when rate hikes actually stop. It’s not likely that home value/equity would climb up by the same magnitude next year. From that perspective, it could be sound advice.
Just a little devil’s advocate perspective.
The only thing to flag here is that the advisor might be anticipating a bullish turn in 2024. Divesting from the current allocation could miss a 20 – 30% recovery when rate hikes actually stop. It’s not likely that home value/equity would climb up by the same magnitude next year. From that perspective, it could be sound advice.
Just a little devil’s advocate perspective.
Since you mentioned only temporarily taking the money out of the market, I would assume you wouldn’t hold the loan for the entire life of it and just pay it off when the old home sells. If that is the case then it is really just about the math. For every 100k you take out of the market you have lost 3500 at 7.5% you monthly payment on the loan is about $625. If your HELOC doesn’t have an early payment penalty then at anything less than about 5 or 6 months you come out ahead in strait cash savings and don’t miss any opportunities if the market booms.
Just going based on the information you provided (no gains to realize, a 7.5% borrowing rate, and given your age I’m guessing a moderate to conservative portfolio) I’d say paying cash probably would make the most sense under those circumstances.
Even an extremely aggressive portfolio is going to have difficulty producing a consistent RoR above 7.5%, so the opportunity cost you’re taking on by removing funds from the market is probably less than what you’d be paying in interest.
Your advisor should have offered you a margin loan that is competitive with your HELOC rate. That way he makes even more in fees and your portfolio stays intact.
>IÔÇÖve been with this advisor just over 2 years. Overall, my account is down 3.5% as of yesterdays close.
https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthav.php?symbol=VTI&start_month=11&start_year=2021&end_month=11&end_year=2023&submit=Calculate+Returns
Just some perspective. If you’d dropped your entire portfolio into VTI instead of going with your adviser approx 2 yeas ago, you’d still be down, but only by 0.91%, so I have to image some of your additional loss is your advisor’s fee.
Clearly your adviser has an interest counter to your own. Do you think your investment will make more than 7.5% interest? That is the only thing that matters. Make your decision accordingly.
A percentage of a bigger investment pool pays your advisor more. So basically he’s giving you this advice: “give me a raise”. My suggestion would be to learn about personal finance and manage your own finance. Best of luck.
Answer depends upon if you plan/need a mortgage to buy the new house.
Most mortgage lenders do NOT allow the borrower to use borrowed funds (HELOC) as any part of the down payment. Besides a HELOC is then included in your debt to income (DTI) ratio.
I like leverage, using the equity in the current house is just smart.
Generally advisors are not worth their cost. This one falls into generally, as do all others youÔÇÖll ever have access to unless youÔÇÖre secretly Warren Buffet. Ride a mutual fund and stop paying fees to a person.
The historical return on the market is 10%. Would you rather lose 7.5% on your money or 10%?
Plus, there’s lots of volatility in the market. You could make a ton of money, lose a ton of money … who knows?
What’s your overall situation? Age? Relationship status? invested assets in and out of retirement accounts?
Have you considered keeping the old house as a rental?
I guess I’m thinking if you have 10M in non-retirement investments that are just sitting around, you might as well buy the house cash. If you’re counting on this money to retire on, in my mind that increases the need to keep it invested.
I guess you’re not old like me. I was in HS when 30 year mortgages hit 18%. Fortunately, it was easy for homeowners like my mother to quickly refinance to lower rates.
Use the heloc. If not sells fast, you’ll pay not much interest in $ terms.
Or sell your house before you buy.
But if you take it out of your investment account, your brokerage wonÔÇÖt get their ÔÇ£load feeÔÇØ on your money. It doesnÔÇÖt cost them anything if you take a higher interest loan then the return your not getting on their brokerage account!
I had this same choice and harvested a loss for taxes by selling some of my managed brokerage account.
That being said, we took way longer to move out of our old house than we expected. There is a nice sense of urgency added to selling and buying at the same time.
Although technically you can do both options, what about putting less down for the new home? If that’s an option, and assuming you have enough equity in the house you’re selling, you can put that money into your new home right after the old home sells and avoid PMI if that’s a concern. Just a simpler way of doing it.