Most people assume a mortgage is the only way to buy a home. For investors with a liquid portfolio, there is another option that costs less, offers better tax treatment, and does not require selling a single position.
When most people buy a home, they do two things: they sell investments to cover the down payment, and they take out a mortgage to cover the rest. Both steps have costs most people never fully price in.
Selling appreciated investments to make a down payment triggers capital gains taxes. If your portfolio has compounded for a decade, liquidating $400,000 to put down on a property might generate a tax bill of $80,000 or more before you have even signed the papers. And then you still get a mortgage at 7%.
For investors with a liquid portfolio, there is a different approach worth understanding.
A box spread is an options strategy that functions as a synthetic loan. You sell a combination of options contracts on a broad index, receive cash upfront, and owe the fixed repayment at expiration. The implied interest rate is set by the options market in real time, with institutional counterparties competing to offer the best rate. There is no bank approval, no credit check, and no DTI calculation.
Current fixed rates on box spread loans run approximately 4.1–4.3% annually for terms up to five years. For context, the average 30-year mortgage rate is currently sitting above 7%.
The interest is treated as a capital loss under IRS rules, making it potentially tax-deductible with no cap. The mortgage interest deduction, by comparison, is capped at $750,000 of loan principal.
You do not have to choose between a box spread loan and a mortgage. You can use both.
Take a $2M home purchase. Instead of a standard mortgage, you borrow $1.25M through a box spread loan at roughly 4.3% and take a conventional mortgage for the remaining $750,000 at the prevailing rate. The mortgage sits exactly at the IRS deduction cap, so you capture the full mortgage interest deduction. The box spread loan interest is deducted separately as a capital loss, uncapped.
You keep your full portfolio invested. You avoid the capital gains hit from selling to fund a down payment. And your blended borrowing cost is meaningfully lower than a standard mortgage alone.
You keep the portfolio intact, avoid the capital gains hit, and borrow at a rate your bank cannot match. That is not a loophole. That is just knowing your options.
The strategy is most compelling for investors buying homes worth more than $750,000, which in California is most homes worth buying. It also works particularly well for people with unconventional income streams or high debt-to-income ratios, where traditional mortgage qualification can be complicated.
The key requirement is a liquid, non-retirement portfolio. Under standard margin rules, you can typically borrow up to 50% of eligible portfolio value. A $3M portfolio could support up to $1.5M in box spread borrowing, enough to finance most purchases outright or eliminate the need for a traditional down payment entirely.
The main risk to manage is margin maintenance. If the portfolio declines significantly, there is a margin call risk. The mitigation is straightforward: borrow conservatively, maintain adequate cushion, and consider a HELOC as a backup facility. A portfolio built to withstand normal volatility will generally handle these requirements without issue.
At STQ, we implement synthetic borrowing through established platforms on the Schwab marketplace. If you are buying a home in the next 12–24 months, this is worth a conversation before you call your mortgage broker.
Buying a home in the next year or two? Let's look at whether a box spread loan belongs in the financing plan before you default to a mortgage.
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