What is a Lombard loan?

Eddie Sammon Investments

What is a Lombard loan? 

What is a lombard loan? A lombard loan is a loan secured on your investment portfolio. The funds can generally be used for any legal purpose.


What are benefits of a Lombard loan?

The benefits of these kinds of loans can be summarised as follows:

  • An often easier loan application process as the loan is secured on your investment portfolio which may be less risky to the bank than certain other investments such as large rural properties, private jets and yachts. They are normally available from private banks, some of which have less stringent lending criteria than retail banks
  • The investment growth on your portfolio may be higher than the loan interest and fees, therefore possibly being cheaper than buying with cash over the period of the loan
  • There are sometimes tax advantages to keeping your portfolio invested and for taking on debt
  • They are often available on an interest-only basis (you pay back the initial loan amount at the end of the term)
  • They can often be combined with traditional mortgages


What are the drawbacks of a Lombard loan? 

  • The minimum investment portfolio ranges from approximately €200,000 to €2,000,000, depending upon the bank.
  • The loans-to-value ratios are lower and not usually greater than 50%
  • The loan terms are usually lower at 7 to 10 years, but clients with large investment portfolios will have more options
  • The interest rates are usually variable “tracker” rate loans, which can cost you more money if interest rates increase


Can you give me some examples of how they work? 


Example 1: a 40% traditional lombard loan with no mortgage financing

A client with an investment portfolio of 1 million euros wishes to gift €400,000 to their children without liquidating the investment portfolio as it is not the right moment for tax reasons. The bank offers a 7-year interest-only loan of €400,000 and places a security over the €1 million investment portfolio. The portfolio is invested into a diverse range of cash, bluechip stocks and liquid investment funds in order to keep the risk within acceptable limits to the client and the bank. Interest is taken quarterly from the investment portfolio and seven years later, the fund has grown to €1.2 million and the client liquidates €400,000 in order to pay back the bank. 


Example 2: a 25% loan-to-value (LTV) lombard loan combined with a 75% loan to value mortgage:

The client wants to purchase a property in Paris for 2 million euros. The client investments €500,000 into an investment portfolio with the bank and in return obtains a 10-year €500,000 interest-only variable-rate loan. The client goes through a very thorough mortgage application process and also obtains a €1.5 million mortgage at a 25-year fixed rate on a capital and interest repayment basis. The client completes the purchase once both loan offers from the same bank have been sent to the notary in Paris. 


Example 3: a combined lombard loan and mortgage

The client wishes to purchase a property for €5 million near Nice, the bank asks for a minimum of 67% of the property value to be sent to the bank and either kept in cash or invested on behalf of the client. The client sends €3.35 million to the bank and obtains a loan of €5 million which is used to purchase the property. This loan is secured partly on the investment portfolio and partly on the property. The initial loan period is for 7 years but due to the very strong financial position of the client, it is renewed for a further seven years and eventually paid off 14 years later. 


How can Aisa International help you? 

We have relationships with European private banks that can help you leverage your investment portfolio. Feel free to contact us to find out more.


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