What I don't understand is how they pay off the loans without triggering a tax event from liquidating capital to do so. Like the loans are always small enough to be paid using the low amounts of taxed income?
what bank would finance this? this is such insane risk. as soon as the stock market hits a recession, the bank will call the loan, and the borrower will be bankrupt.
(2021)
What I don't understand is how they pay off the loans without triggering a tax event from liquidating capital to do so. Like the loans are always small enough to be paid using the low amounts of taxed income?
Interest accrues, it's not paid.
Then the debt is rolled over into a new loan for a larger amount.
As long as the collateral increases in value faster than the interest rate, this can continue indefinitely.
what bank would finance this? this is such insane risk. as soon as the stock market hits a recession, the bank will call the loan, and the borrower will be bankrupt.
I would either renegotiate the loan or, almost equivalent, get a second loan to pay off the first one.