Schwab Loans: What You Need To Know

Charles Schwab offers a range of loan options to its clients. The company has partnered with Rocket Mortgage to provide home lending options, including mortgages. Additionally, Charles Schwab offers a Pledged Asset Line, which is a line of credit that leverages portfolio assets as collateral. This allows clients to access funds without liquidating their investments. The company also provides securities-backed credit lines, where the value of non-retirement investments is used as collateral. Charles Schwab also offers mortgage interest rates and exclusive mortgage rate discounts for eligible home loans through its Investor Advantage Pricing program.

Pledged Asset Line

Charles Schwab Bank offers a Pledged Asset Line (PAL) as a non-purpose line of credit. This means that you can borrow against non-retirement portfolio assets without having to liquidate your investments. This line of credit is collateralised against your investments.

The Pledged Asset Line is secured by assets held in a separate Pledged Account maintained by Charles Schwab & Co., Inc. ("Schwab"). This allows you to access funds while maintaining your investing strategy. The Pledged Asset Line can be used for a wide range of financial needs, such as avoiding tax consequences that may result from selling assets to meet immediate cash needs. It also offers competitive rates and exclusive discounts, with no setup fees or prepayment penalties.

Before applying for a Pledged Asset Line, it is important to understand the risks involved. Pledging securities as collateral involves a high degree of risk, and the advertised Annual Percentage Rate (APR) is an estimate that may vary based on the current market rate. The APR will be set during underwriting and is based on the loan value of the collateral at the time of origination.

PAL loans made to irrevocable trusts define the "Borrower" as the Trust named in the PAL loan application. Qualifying assets are based on the combined account balances of brokerage accounts, bank deposit accounts, and retirement accounts (excluding IRAs).

Home mortgage lending

Charles Schwab Bank offers a range of lending products, including home mortgage lending solutions. The bank has partnered with Rocket Mortgage, America's largest mortgage lender, to provide its clients with home lending options. Rocket Mortgage is the home lending provider of Schwab Bank.

Through this partnership, eligible clients can access exclusive discounts and competitive rates for a wide range of loan options. These include home mortgages and home equity lines of credit (HELOCs). The interest rate discount for eligible clients can be anywhere between 0.25% and 1.00%, based on their qualifying assets with Schwab Brokerage and Schwab Bank.

The Schwab Pledged Asset Line is a line of credit that leverages portfolio assets as collateral. It is a non-purpose line of credit, meaning it can be used for a wide range of financial needs, including borrowing against non-retirement portfolio assets without liquidating investments. The Pledged Asset Line is available for both natural persons and trusts, with the latter defined as the "Borrower" in the case of loans made to irrevocable trusts.

Rocket Mortgage offers a Verified Approval Letter (VAL) service, which provides clients with pre-approval for a mortgage loan before they start their home search. This service allows buyers to know how much home they can afford and positions them as more competitive buyers. The VAL involves full credit, income, and asset verification to ensure an expedited loan process.

Mortgage interest rates

Charles Schwab does not provide mortgages or loans itself, but it has partnered with Rocket Mortgage since 2012 to provide its clients with home lending options.

Charles Schwab offers its clients competitive interest rates for home loans on a variety of loan types. The company's Investor Advantage Pricing (IAP) provides exclusive mortgage rate discounts for eligible home loans. This discount can be between 0.25% and 1.00% based on qualifying assets of $250,000 or more. The discount applies to Adjustable Rate Mortgages (ARMs) and Jumbo 15-year and 30-year fixed loans, but not Home Equity Lines of Credit (HELOCs) or conforming loans. Qualifying assets include Schwab brokerage accounts and Schwab Bank combined account balances, including traditional, Roth, and Rollover Individual Retirement Accounts (IRAs).

For a limited time, clients can receive an additional 0.25% discount on select adjustable-rate and 15-year Jumbo loans, which can be combined with select IAP-eligible mortgage products.

Charles Schwab also offers a Pledged Asset Line (PAL) for eligible clients, which is a non-purpose line of credit that allows clients to borrow against their non-retirement assets.

Adjustable-Rate Mortgages

Charles Schwab offers Adjustable-Rate Mortgages (ARMs) with initial terms of 5, 7, or 10 years, after which the interest rate adjusts annually. There are also 5/1 and 7/1 versions where borrowers pay interest only initially and start paying off the loan balance later.

Home loans

Charles Schwab does offer home loans. The company has been focused on putting clients first for over 40 years. In 2012, Charles Schwab Bank joined forces with Rocket Mortgage to provide clients with home lending options from America's largest mortgage lender.

The mission behind Rocket Mortgage is to simplify the complicated home financing process by using innovative technology. Throughout the loan process, clients will work with both Schwab Bank and Rocket Mortgage to receive industry-leading technology, the convenience of viewing loan information via their Schwab.com account, advantaged pricing, and top-of-the-line service.

Schwab Bank offers access to a variety of competitively priced lending solutions, including home mortgages and home equity lines of credit (HELOCs). Eligible clients may receive a 0.25%-1.00% interest rate discount based on their qualifying assets with Schwab Brokerage and Schwab Bank.

There are five basic types of mortgage loans to consider when buying a home:

• Fixed-rate mortgage: the interest rate is set for the life of the loan, usually 15 or 30 years.
• Adjustable-rate mortgage (ARM): the interest rate may vary over time.
• Interest-only mortgage: initial interest-only payment period followed by a fully amortizing payment period.
• Government-backed loans: loans backed by the U.S. Department of Agriculture for low-income borrowers in qualified suburban or rural areas.
• Conventional loans: loans that are not insured or guaranteed by the government.

It is important to carefully consider your options when choosing a mortgage loan, as it is a long-term financial decision. You should also keep in mind that circumstances can change, and it may be possible to refinance or switch to a different loan type down the road.

Securities-backed credit line

Charles Schwab does offer loans in the form of a pledged asset line, which is a non-purpose line of credit collateralized against your investments. This means that you can borrow against your portfolio assets without liquidating your investments.

A securities-backed credit line is a powerful and flexible source of liquidity that can help you meet your financial goals. It allows you to borrow against the value of your investments to accomplish goals without disrupting your wealth management plans. For example, you can use it to seize a real estate opportunity, fund a short-term business expense, or cover an unexpected tax bill.

A key advantage of a securities-based line of credit is that it generally has no setup fees, application fees, loan origination fees, annual costs, or early repayment penalties. However, lenders can charge late fees for not paying back the loan per the loan agreement. The interest rate on the loan is variable and based on the value of the pledged investment portfolio. Many investors pledge a large portion of their investment account to get a better interest rate, and using only a small portion of the pledged amount can reduce the chance of a bank demand. Interest accrues daily and is payable monthly, and any accrued interest charges are added to the loan balance if unpaid.

Securities-backed lines of credit are best suited for investors who are knowledgeable about the markets and can manage the risk of a bank demand. They are typically used for short-term needs due to the potential for market swings and the obligation to repay accrued interest. It's important to carefully consider the risks and potential consequences, such as the possibility of your investments being liquidated to cover outstanding debt.

Frequently asked questions