Giving my Brother Credit

My older brother has committed to help his daughter with her house purchase. The contract was signed a year ago, and now that the house is ready he's on the hook for a substantial amount of money. However, he's short on liquidity. He cannot get a loan in the bank, and has to sell something in order to cover his commitment.

The problem is that his most liquid asset is also the asset he's least interested in selling. If he sells his gold at current prices, he loses a lot on the spread. He'd rather post the gold as security for a loan, but banks no longer accept gold as security.

This puts him in a squeeze where the bank and gold trader are likely to get away with a big cut of his savings, unless he can find liquidity among friends and family.

Luckily for my brother, my wife and I have access to credit, and we accept gold as security. This means that we can apply the strategy outlined in this post from February.

The deal will be as follows:

1. My brother posts 100% security in gold at spot price for the loan he wants to raise.
2. My wife takes out a mortgage on her apartment for the same amount.
3. My brother promises to cover all my wife's costs and pay 1% above her bank rate.
4. The duration and payment plan of the loan matches that of the mortgage.
5. Security is handed back in proportion to the down payments.

I'm in the fortunate position that I can trust my brother 100%, so the security doesn't have to be moved into the hands of a third person. All I need to know is where to find it, and that bit of knowledge can be shared with me directly in a letter, hand written and sent to me. Should anything happen to my brother, I will have sufficient proof that the security is mine, and not part of his estate.

This plan saves my brother from the substantial loss that he would incur if he had to sell his gold. Instead of giving the gold trader a big cut, he gives me a small profit in capacity of being his bank contact in Porto.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link