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How do you react to the financial adviser strategy

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Problem - Ida Ross has decided to purchase a new home in a retirement community for $400,000. She has $50,000 in cash for the down payment but needs to borrow the remaining $350,000 to finance the purchase. Her financial adviser, Marc, suggests that rather than seeking a conventional mortgage, she should borrow the funds from State Bank using her portfolio of appreciated securities as collateral. Selling the securities to generate $350,000 in cash would lead to a substantial tax on the capital gain recognized. As a result, a better strategy would be to borrow against her securities and then claim a deduction for the interest paid on the loan. How do you react to the financial adviser's strategy?

Reference no: EM132668478

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