Financing a Home with SyntheticFi

A Better Way to Finance a Home

(Refer to this case study to see how SyntheticFi helps financial advisors acquire and retain clients through better real estate financing.)

Historically, when buying a home, clients take out a mortgage, which necessitates making a down payment and then regularly paying a portion of the principal + interest in installments. To put cash down, clients usually liquidate some of their investments which comes with these disadvantages:

• Capital Gains Taxes: Liquidating appreciated assets triggers capital gains taxes, which can be substantial.

• Missed Investment Growth: Selling assets means missing out on future growth.

Say Tony is looking to buy a $2MM property in Menlo Park. He's worked at Apple for the last 7 years, and through a combination of employer stock grants and wise investments, he's built a portfolio worth $3MM. One way he could finance a home purchase is by paying 20% down—which means selling $400K of his portfolio, and taking out a $1.6MM mortgage. Tony would face significant tax consequences: ~$22K in long-term capital gains taxes from selling his AAPL shares! (Apple's stock price has appreciated by 366% over the last 7 years, as of 4/15/2025. This calculation assumes a long-term capital gains tax rate of 20%.) Not to mention, Tony would lose the upside potential of his investments, and pay for a ~7% mortgage.

Even getting a mortgage is not a straightforward process:

• There are certain income requirements and credit checks that can hurt a client's credit scores.

• The process can be complicated with lots of hidden fees.

• Mortgage interest deductions only cover the first $750K.

However, clients who choose to borrow against their investments with SyntheticFi's lending solutions enjoy several benefits:

• No Down Payment Needed: Mortgages require a large down payment, which might force clients to sell their investments. SyntheticFi lets clients finance the purchase without tying up cash, keeping their money invested.

• Lower Interest Rates: SyntheticFi secures the loan against the client’s portfolios, which are liquid and have favorable growth, allowing clients to enjoy lower interest rates—~4.1-4.3% for long-dated fixed-rate loans (Latest quotes available here).

• Tax Benefits: There's no sale of assets to fulfill a downpayment, so there's no added capital gains tax. Furthermore, with SyntheticFi, the loan interest is treated as a capital loss under IRS rules, offering deductible expenses with no cap. (Learn more about the tax advantages here.)

• Preserving Investment Growth: By borrowing against their portfolio, clients keep their investments working, potentially earning returns that could outweigh the cost of the loan.

With SyntheticFi, Tony can borrow money at near-benchmark rates. He can secure a tax-deductible 4.1% fixed rate for 5 years—with no down payment, so he can keep his full $3MM portfolio invested and working for him. If Tony combines the box spread strategy with a jumbo mortgage, he would save over $200K in 5 years. Amazing!

RIA's and clients interested in an in-depth comparison of this financing strategy against traditional approaches can refer to this guide.

Who Can Finance a Home Against Their Securities

SyntheticFi is suitable for most clients who are mass affluent and above, and have home purchase and real estate transaction needs. The program is especially beneficial for clients who are 1) buying homes worth more than $750K; and 2) people who have unconventional income streams, or are sensitive to DTI. 

Some particularly interesting scenarios: 

3 Steps to Demonstrate Value to Your Clients and Build a Proposal

Too often, advisors are outside the mortgage conversation. SyntheticFi has developed a 3-step process that could help you facilitate the conversation with your client on their home purchase journey and help you demonstrate your insight and value. Contact SyntheticFi directly to discuss specific scenarios and build client proposals.

SyntheticFi loans use an exchange-traded options strategy called a box spread. A box spread is an institutional borrowing tool that SyntheticFi makes accessible to retail clients. It effectively functions like a zero-coupon bond; clients receive upfront principal in the form of an option premium, and are obliged to pay interest at the end. With the market counterparties like hedge funds, ETFs, corporate treasuries, and family offices act as lenders, competing in real-time for the best rate, which is then provided to your clients directly, bypassing financial middlemen like banks and custodians. You can learn more about our approach in this article.

Step 1: Start the Conversation by Quickly Evaluating Client Borrowing Capacity

Determine how much the client can borrow by reviewing their liquid, non-retirement investments. For instance, with a $3MM portfolio as qualified collateral, the client could borrow up to $1.5MM under Reg T margin rules, which typically allows 50% release. Clients with Portfolio Margin accounts may qualify for higher release rates.

Portfolio Margin is a newer margin program that is available at many brokerage platforms, such as Charles Schwab. Unlike Reg T margin, which applies a fixed release percentage to each position, Portfolio Margin assesses overall portfolio risk. A well-balanced or hedged portfolio can significantly benefit from Portfolio Margin, often increasing the margin release to 85%.

This is also a great time to review your client’s general portfolio health, and demonstrate the value of planning and staying on target!

Step 2: SyntheticFi Alone Or Bundle with a Mortgage?

SyntheticFi can finance the entire home purchase; yet, our solutions can also be bundled with a traditional mortgage, if clients, say, do not have enough assets to back the entirety of the purchase. In the second scenario, SyntheticFi in effect allows for a large down payment.

Let's say the client is Tony, looking to purchase a $2MM property, which will be financed with debt. Depending on the borrowing capacity of Tony's portfolio, he might be able to fulfill the $2MM payment with a fixed-rate SyntheticFi loan at a very competitive 4.1% interest rate (review our real-time rate quotes). Under Reg T margin, that would require at least $4MM of eligible assets as collateral. If Tony can only manage $3MM of collateral, then he can borrow up to $1.5MM against his portfolio and use another loan instrument, like a mortgage to cover the rest.

Splitting the funding between a SyntheticFi loan and a conventional home mortgage can be useful for tax optimization.

For instance, Tony might borrow $1.25MM at 4.6% through SyntheticFi and take a $750K 5/1 ARM at 7%, leveraging the full mortgage interest deduction up to the IRS $750K cap while deducting the SyntheticFi loan interest as uncapped capital losses (to learn more about this hybrid strategy, refer to our article).

Clients would be excited to learn that you can not only find them the cheapest “mortgage” rate on the market, but also take taxes into consideration, saving them tens, if not hundreds of thousands per year. SyntheticFi provides calculators and helps you generate proposals comparing our option vs. a regular home mortgage. Contact SyntheticFi to build a customized proposal for your client.

Step 3: A Concrete Plan for Ongoing Costs and Repayment

Once the financing needs are clear, factor in interest and principal repayment:

• For Maximum Flexibility, Choose the Floating Rate Product. SyntheticFi’s Line of Credit offers flexibility, and allows interest and principal repayment at any time. However, the client will be subject to monthly variable interest rates,(which fluctuate with the SOFR rate (Fed Funds rate).

• For Maximum Predictability, Choose the Fixed Rate Product. SyntheticFi allows your clients to lock in an interest rate for up to 5 years, with no prepayment penalty. However, early repayment is subject to interest differential risk.

• Blended Strategy: Clients who anticipate making early repayments, but want to take advantage of fixed rates can consider a “laddered” approach, similar to a bond ladder. For example, a ladder of SyntheticFi loans, with expirations ranging from 1-5 years, each 20% of the total loan value, enables a 20% annual paydown.

Fees: SyntheticFi charges a 0.2% annual management fee on the borrowed amount. Contact SyntheticFi to discuss specific client discounts available.

Build Trust by Including Risks and Contingency Planning

A SyntheticFi Loan itself introduces minimal risk to clients. ​​Our loans, or trades, are guaranteed by the Options Clearing Corporation (OCC), which holds an AA rating and is designated as a Systemically Important Financial Market Utility (SIFMU). The OCC successfully cleared trades through both the 1987 crash and the 2008 Global Financial Crisis without failure.

That said, there are two key risks clients need to be aware of: margin calls and refinancing.

Margin Calls

Similar to a traditional margin loan or SBLOC, SyntheticFi loans require ongoing margin to cover potential market fluctuations. While the loan is outstanding, the equity in the client's portfolio must meet margin maintenance requirements to avoid margin calls.

For example, if borrowing the maximum 50% under Reg T margin, the client's portfolio must not decline by more than ~28.5%. (Calculated with an initial margin percentage of 50% and a margin maintenance percentage of 30%; max loss without margin call is [1-50%/(1-30%)] = 28.57%. These percentages are common for most stocks, mutual funds, and ETFs, but check with your custodian for exact margin requirements.).

Reducing borrowing to 30% (instead of 50%) can withstand over 60% declines, sufficient to endure all major market crashes since the Great Depression.

For additional protection, SyntheticFi can help with risk mitigation strategies, notably:

• Using a Home Equity Line of Credit (HELOC) as a backup. A HELOC can be secured against the portion of home equity paid with a SyntheticFI Box Spread Loan. HELOCs typically carry an interest rate of Prime +1% (currently 8.5%). In the event of a margin call, your client may temporarily tap into their HELOC to meet the margin requirement, avoiding a forced sale of their portfolio.

• Reducing the borrowing percentage. For example, borrowing only 30% of the portfolio would allow your client to withstand a market decline of over 60% without a margin call, sufficient to endure all major crashes since the Great Depression. SyntheticFi can also help clients with increasing loan collateral, which increases their margin of safety. 

• If your client is margin called, SyntheticFi can also contact and request your custodian to lower the margin maintenance requirement, which should give your client’s portfolio an additional 10-15% room to fall, without triggering a margin call.

Refinancing

Longer-dated SyntheticFi Loans lock in an expiration far into the future. If your client wishes to refinance before expiration, the trades underpinning the loan must be offloaded. This introduces interest rate differential risk - the cost of closing the position will depend on the difference between the original locked rate and prevailing market rates at the time of refinancing.

For clients who anticipate making early repayment, SyntheticFi supports the “laddered” approach already mentioned.

Making the Withdrawal

Most clients buying real estate are under strict closing timelines. Our streamlined process for onboarding and borrowing funds makes it easy to secure a loan to meet their tight deadlines. Onboarding onto our platform typically takes one week to finish, after which clients can immediately request a withdrawal. With SyntheticFi, the proceeds of the loan are available:

• One week from signing the paperwork, if the client's assets are in an eligible brokerage account.

• Three weeks from signing the paperwork, if not.

Clients can initiate the process 2-4 weeks before the funds need to be ready for escrow or wire transfer.

Once the loan funds are procured, they will be cleanly separated from the client's main account.

There are no restrictions on using these funds for the home purchase—they can be transferred to a bank or escrow account as needed.

Managing the Loan Post-Closing

Once the loan is secured, SyntheticFi helps client with all loan management duties:

• Interest Payments: Fixed-rate SyntheticFi loans, which we recommend for property purchases, are balloon loans, so they don't require regular interest payments. However, floating-rate loans recommend regular interest payments (monthly, quarterly, or annually), but payments can be made by setting up a recurring cash deposit into the brokerage account.

• Monitoring Margin Maintenance Requirements: Ensuring the portfolio meets margin requirements to avoid margin calls.

• Refinancing: If the client wishes to refinance before expiration, they may be faced with an interest rate differential penalty. Contact SyntheticFi for more details.

• Taxes: SyntheticFi’s loans offer significant tax advantages that we recommend giving your CPA a heads-up. For most clients, brokerages will issue a consolidated 1099 with the requisite reporting, which can be easily handled by tax software applications or a CPA.

Conclusion

SyntheticFi offers a powerful way to finance your home, blending competitive interest rates, tax advantages, and the flexibility to keep your investment portfolio intact. By following a clear process—evaluating borrowing capacity, determining financing needs, planning costs and repayment, and making a seamless withdrawal—clients can unlock significant savings. Though it requires careful management of margin risks and repayment terms, SyntheticFi’s integration with major brokerages and the savings from lower interest rates and additional tax deductibility makes it a great way for you to create value for your clients. Reach out to our team to learn more.

(All rates mentioned in this article, including but not limited to, mortgage rates, prime rates, and box spread implied interest rates, are current estimates as of 4/15/2025.)