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How to make your loan work for you: mortgages, Lombard loans and structured loans - YouTube
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when it comes to your loans are you
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always working to pay them off
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what if you were rewarded for taking out
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a loan today we cover three common types
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of loans
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mortgages lumbar loans and structured
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loans
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let's start with mortgages we've all
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grown up hearing about them
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in fact as far as loans go mortgages are
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a household name
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we all know that a mortgage is simply a
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loan that allows you to buy a house
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or a property to live in holiday inn
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work in or to rent out for income so how
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do you persuade somebody to lend you
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this money
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with a mortgage you're pledging the real
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estate as collateral for the money to
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help you buy it
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collateral is what the bank or the
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lender needs as security
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in return for the risk of lending you
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the money basically it provides a
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guarantee that they can take ownership
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of the real estate if you fail to pay
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back the loan
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it also works to your advantage because
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without collateral
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the lender would have to charge you a
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much higher interest rate to cover their
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risk
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a mortgage is a leveraged investment
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which means that the higher the
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borrowing the higher the potential
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return
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but also the higher your risk imagine
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you buy a property for one million swiss
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francs but you decide to only invest
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250 000 this means your mortgage is for
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750 000
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let's say you're very lucky and the
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property's value increases to 2 million
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in 10 years
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in this case your profit would actually
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be a hundred thousand francs
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per year which equals forty percent of
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your initial investment of two hundred
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fifty thousand
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of course you have to deduct interest
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rates you pay for the mortgage
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but in the current low interest rate
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environment your return would still be
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much higher than if you had invested 1
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million out of your own pocket
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in that case the yearly return would
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have only been 10
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or 100 000 out of the 1 million so
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there's pretty much a big world of
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difference if you're receiving a return
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of 40
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versus 10 this is an example of the
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power of leveraging which is heightened
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by the current low interest rate
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environment
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however the scenario can also have a
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different outcome if the real estate
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market
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slumps during this 10-year period then
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the property's value would decrease and
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you could be forced by the lender to
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reduce your
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actual mortgage down to a reasonable
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loan to value
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level this is known as a margin call now
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if you understand
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the basics of mortgages then you're on
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the right path to understanding lombard
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loans
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both types of loans rely on leveraging
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your capital as efficiently as possible
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for the best outcome
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they are also both secured using
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collateral while real estate is the
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collateral for a mortgage
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lumbar loans are secured with a
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securities portfolio that's a fitting
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name right
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securities for lombard loans can be
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equities bonds
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investment funds or even structured
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products as long as they're listed
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and liquid it doesn't matter what type
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of security they are
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pledging your securities as collateral
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means they don't need to be sold
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this is a pretty cool benefit you
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basically get to keep your assets while
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you gain financial flexibility
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through new liquidity that's why we call
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a lombard loan a multi-purpose loan
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which grants you full flexibility a
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first example for how you can benefit
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from lumbar loans is for an individual
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or for commercial enterprise purposes
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let's explore what that looks like in
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real life say you're an entrepreneur and
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you wish to grow your business
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maybe you've found a third party that's
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willing to finance that expansion
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however you need additional funds today
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since the money from the third party
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will only be provided in the medium term
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that's where lumbar lending comes in
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handy or maybe you'd like to purchase a
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second home abroad where it's a bit
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difficult expensive or time intensive to
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get financing for the property itself
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with the proceeds from a lombard loan
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you can purchase or refinance a property
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let's take the two examples i just
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mentioned before
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and see how lumbar loans are quite
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flexible perhaps you intended to finance
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business expansion but you actually end
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up purchasing a home abroad instead
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with lumbar loans the funds are totally
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at your discretion for the duration
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of the loan which means that you can
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rethink and change what you use the
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funds for
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as you need just keep in mind that like
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any investment potential rewards come
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with potential risk
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compared to other types of lending
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lumbar loans depend on
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and hence are exposed to the
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fluctuations and value of your
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securities portfolio
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given their market credit and liquidity
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risk
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let's now turn to a more complex option
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for lending
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structured finance structured finance
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mechanisms are the ideal solution when
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standard processes and policies just
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simply don't cut it
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it's a bit like building a custom
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designed house you create what you want
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but you need to make sure that
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everything is in place so if we stick to
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this metaphor the blueprint for your
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home relies heavily on one key element
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whether the collateral you've pledged if
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any
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comes from listed securities or private
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assets
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this collateral is like the foundation
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that underpins your home
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its exact property such as risk profiles
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for example
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can inform what type of construction can
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be built what's key to know is that
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listed
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assets are by nature typically easier to
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liquidate
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than private assets which require a much
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more complex
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approach let's take a real life scenario
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as an entrepreneur perhaps you're the
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majority owner in your business
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luckily the company is valued at 10
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billion swiss francs
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so you're quite wealthy on paper but
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unfortunately your account holds very
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limited liquid assets
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this is something that happens quite
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often equity rich
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but liquidity poor shareholders of
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unlisted companies
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who are looking to monetize against
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their private shares
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we call this cash flow back lending
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where people monetize against their
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private shares by using them as
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collateral
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that's where a structured finance
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opportunity comes in handy for you
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the customized and flexible nature of
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structured finance
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means it's possible to bundle different
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types of collateral into
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one facility such as for example listed
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securities
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real estate alternative assets or
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private shares
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this is the beauty behind structured
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finance but it can become
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really complex this is why it's not
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really an area for off-the-shelf
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solutions
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but really it comes down to determining
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tailored solutions
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for each person's exact financial
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situation
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so at the end of the day it's clear that
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securing the correct loan structure
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can provide you with financial gain and
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flexibility
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however on the flip side if you pick the
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wrong lending structure this can limit
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you in terms of liquidity
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and expose you to unnecessary risk
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getting this balance right means
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transparency about your financial
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situation
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this clarity enables your lender to
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structure the best possible loans for
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you
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because after all loans are a way to
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make your money work harder for you
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check out the julia spare website for
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more resources on investing
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wealth planning and megatrends
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