Line of credit secured by brokerage account

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VoiceOfReason
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Line of credit secured by brokerage account

Post by VoiceOfReason »

My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
runswithscissors
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Re: Line of credit secured by brokerage account

Post by runswithscissors »

I am curious about this too, particularly how this will show on a credit report and how it will impact a credit score. One downside off the bat is if the value of your account holdings drops below a threshold, you'll be forced to pay down the line much like you would with a margin call. I'd also assume holdings could be sold off if you don't cover the minimum delta within a specified period of time.
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whodidntante
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Re: Line of credit secured by brokerage account

Post by whodidntante »

I think everyone with a large taxable account should have margin or a pledged asset line setup as a convenient source of liquidity. The lowest margin rates for small time investors are at IB, and I doubt you will find anything better anywhere. But I've heard that Schwab and Morgan Stanley also offer good rates on pledged asset lines.
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VoiceOfReason
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Re: Line of credit secured by brokerage account

Post by VoiceOfReason »

runswithscissors wrote: Mon Jun 22, 2020 1:41 pm I am curious about this too, particularly how this will show on a credit report and how it will impact a credit score. One downside off the bat is if the value of your account holdings drops below a threshold, you'll be forced to pay down the line much like you would with a margin call. I'd also assume holdings could be sold off if you don't cover the minimum delta within a specified period of time.
Yes, exactly. Your borrowing limit (is uniquely calculated and set by the broker based on what you’re invested in) is usually around 60-75% the value of the account.

So say you have $1mm in your account, you can borrow ~$700k. If you borrow up to the limit of $700k and the account value goes down even 1%, you get the margin call. Then you have 5 days to either sell some securities to safer investments/cash or add new funds to the account or pay down the debt on the line of credit. For this reason they do not recommend coming close to your credit limit.

I just cannot believe the rates offered and the liquidity it provides.
mptfan
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Re: Line of credit secured by brokerage account

Post by mptfan »

VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.
Can you be more specific, what are the rates?
BSBHead
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Re: Line of credit secured by brokerage account

Post by BSBHead »

Understanding the fine print will be helpful. What is the right of set-off rules? Could they give a certain notice (e.g. 30 days) to cancel, which may mean you may have to liquidate proceeds at a time you really don’t want to liquidate? Banks are in and out of securities lending due to regulatory changes, so understanding how and when the bank can cancel the credit facility is important.
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cchrissyy
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Re: Line of credit secured by brokerage account

Post by cchrissyy »

very interesting, thanks for starting the thread!

rates and fine print here for schwab
https://www.schwab.com/public/schwab/ba ... asset_line
60-20-20 us-intl-bond
mushyyy
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Re: Line of credit secured by brokerage account

Post by mushyyy »

Are there any advantages vs a standard mortgage?
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whodidntante
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Re: Line of credit secured by brokerage account

Post by whodidntante »

mushyyy wrote: Mon Jun 22, 2020 4:22 pm Are there any advantages vs a standard mortgage?
I opined in this post.

viewtopic.php?f=2&t=317083&p=5300795&hi ... n#p5300795
informal guide
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Re: Line of credit secured by brokerage account

Post by informal guide »

In essence, a margin brokerage account at an institution like Vanguard or Fidelity can provide this liquidity, up to around 50% of account value, assuming the securities in the account are eligible. Margin borrowing is often used for leveraging portfolio purchases, but can be used for other purchases. One attractive element is that margin borrowing is not, at least to my knowledge, reported on consumer credit reports. I successfully used it years ago as a bridge loan in a residential real estate transaction. The buyer of my old house wanted to close several weeks after I was closing on my new house. So I had a large margin loan for about a month, secured by my securities (mutual funds and stocks) at the brokerage.

Vanguard has a detailed brochure that includes a good discussion of risks and costs and mechanics. One can easily apply online at no cost until you borrow. (my guess is that Vanguard is more conservative than other brokers in approving margin borrowing).

Here is a link to Vanguard's brochure:

https://personal.vanguard.com/pdf/margin.pdf?2210156627
nalor511
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Re: Line of credit secured by brokerage account

Post by nalor511 »

I don't want to move my assets to IB, it would be nice if one of the big 3 would lower their margin loan rates to match IB
skibummer
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Re: Line of credit secured by brokerage account

Post by skibummer »

whodidntante wrote: Mon Jun 22, 2020 1:45 pm I think everyone with a large taxable account should have margin or a pledged asset line setup as a convenient source of liquidity. The lowest margin rates for small time investors are at IB, and I doubt you will find anything better anywhere. But I've heard that Schwab and Morgan Stanley also offer good rates on pledged asset lines.
Is this PAL account from Schwab or other similar pledged accounts considered a margin account? It is my understanding that a margin account allows the brokerage to loan out your shares and instead of getting qualified dividends you may receive a substitute payment in lieu of dividends. This is the same dollar amount as the dividend you did not receive, but it no longer gets the favorable tax rate of a qualified dividend. In a cash account, your broker isn't allowed to use your shares to lend to short-sellers, preventing the payment in lieu situation from coming about. By contrast, a margin account usually includes provisions allowing your broker to lend your shares whenever it wants.
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whodidntante
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Re: Line of credit secured by brokerage account

Post by whodidntante »

skibummer wrote: Mon Jun 22, 2020 5:00 pm
whodidntante wrote: Mon Jun 22, 2020 1:45 pm I think everyone with a large taxable account should have margin or a pledged asset line setup as a convenient source of liquidity. The lowest margin rates for small time investors are at IB, and I doubt you will find anything better anywhere. But I've heard that Schwab and Morgan Stanley also offer good rates on pledged asset lines.
Is this PAL account from Schwab or other similar pledged accounts considered a margin account? It is my understanding that a margin account allows the brokerage to loan out your shares and instead of getting qualified dividends you may receive a substitute payment in lieu of dividends. This is the same dollar amount as the dividend you did not receive, but it no longer gets the favorable tax rate of a qualified dividend. In a cash account, your broker isn't allowed to use your shares to lend to short-sellers, preventing the payment in lieu situation from coming about. By contrast, a margin account usually includes provisions allowing your broker to lend your shares whenever it wants.
They won't do that for fully paid shares unless you sign a fully paid lending agreement (or whatever your broker calls it). And there is typically compensation for the unfavorable tax consequences, which is kind of the point of a fully paid lending agreement. If you buy shares on margin, yes, they might lend those out to a short seller.
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whodidntante
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Re: Line of credit secured by brokerage account

Post by whodidntante »

nalor511 wrote: Mon Jun 22, 2020 4:45 pm I don't want to move my assets to IB, it would be nice if one of the big 3 would lower their margin loan rates to match IB
As long as we are wishing, I want a free puppy that will never die.
MarkerFM
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Re: Line of credit secured by brokerage account

Post by MarkerFM »

nalor511 wrote: Mon Jun 22, 2020 4:45 pm I don't want to move my assets to IB, it would be nice if one of the big 3 would lower their margin loan rates to match IB
Depending upon how much you have at the brokerage, they will negotiate posted rates. I did so with Fidelity and actually quoted the IB rates. My Fidelity rep told me that was helpful because it helped make the case for getting a low rate. The size of the amount outstanding also affects the rate.

We used our margin account to the tune of seven figures plus during a year or two period where we owned four houses, working our way down to two. The rate was very low.

It does not appear on any credit report. I believe some of the interest might be deductible as investment interest, but this would be highly depended upon your circumstances. They all calculate the permitted borrowing amount the same way based on (I think) SEC and exchange rules.
skibummer
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Re: Line of credit secured by brokerage account

Post by skibummer »

whodidntante wrote: Mon Jun 22, 2020 5:08 pm
nalor511 wrote: Mon Jun 22, 2020 4:45 pm I don't want to move my assets to IB, it would be nice if one of the big 3 would lower their margin loan rates to match IB
As long as we are wishing, I want a free puppy that will never die.
Looks like IB has great margin rates. They have a Pro (max $10/month maintenance fee or trade costs) or Lite (free) account versions. A loan balance of less than $100,000 is 1.59% for Pro and 2.59% for Lite (if your loan balance is more than $12,000 for the year) you should go with Pro. Pro has trading fees, but trading $100,000 of VTI would cost less than $2.25.

https://www.interactivebrokers.com/en/i ... =46376&p=m
Topic Author
VoiceOfReason
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Re: Line of credit secured by brokerage account

Post by VoiceOfReason »

mptfan wrote: Mon Jun 22, 2020 3:24 pm
VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.
Can you be more specific, what are the rates?
4.0% for a line of credit up to $500k. If you qualify fir $1mm it was 2.9%. And trended down from there the more $ you have in the account. Your rate is based on the max you are eligible for. So the $1mm line gets you 2.9% on any $ you borrow. If it’s $10k or $100k. Same 2.9%.
Gill
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Re: Line of credit secured by brokerage account

Post by Gill »

Interest isn’t deductible, of course.
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simas
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Re: Line of credit secured by brokerage account

Post by simas »

VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
it is called margin loan and is generally a bad idea unless your portfolio is extremely stable in value and you also have free cash to back it up if it gets called (or your positions get liquidated). this is one of the ways (margin loan) how brokerages make money (along with payments for order flow, short selling securities landing ,and formerly commissions).

don't do it. whether reg T or portfolio margin, still -> if you have to ask about it, it is not for you.
skibummer
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Re: Line of credit secured by brokerage account

Post by skibummer »

VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
tcw
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Re: Line of credit secured by brokerage account

Post by tcw »

skibummer wrote: Sat Jun 19, 2021 7:00 am I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
skibummer, just curious: how did you negotiate the rate?
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VoiceOfReason
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Re: Line of credit secured by brokerage account

Post by VoiceOfReason »

skibummer wrote: Sat Jun 19, 2021 7:00 am
VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
Wow, this is way better than their published rates. How were you able to negotiate that rate?

$100,000 to <$250,000
4.65%

$250,000 to <$500,000
3.40%

$500,000 to <$1,000,000
2.90%

$1,000,000 to <$2,500,000
2.40%

$2,500,000 and above
1.90%
Kompass
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Re: Line of credit secured by brokerage account

Post by Kompass »

This is a new topic for me which I find very interesting. I am wondering if this could be used for a bridge-loan type situation? Facilitating a cash offer on real estate buying time to sell current home.
geegecko
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Re: Line of credit secured by brokerage account

Post by geegecko »

Has anyone used this type of loan to refinance a small balance (less than 100K) on their home?

I guess the rate is variable and the loan is subject to be called in if your assets fall below the bracketed amount.
tcw
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Re: Line of credit secured by brokerage account

Post by tcw »

Kompass wrote: Mon Jun 21, 2021 12:57 pm This is a new topic for me which I find very interesting. I am wondering if this could be used for a bridge-loan type situation? Facilitating a cash offer on real estate buying time to sell current home.
Mr. Money Mustache has a recent blog post about doing something similar. He bought a house without having to liquidate his holdings, then sold it to a friend shortly afterward, and then paid back the loan. The loan gave him access to cash without selling anything and having to pay capital gains tax.
https://www.mrmoneymustache.com/2021/01 ... kr-review/
Average Investor
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Re: Line of credit secured by brokerage account

Post by Average Investor »

skibummer wrote: Sat Jun 19, 2021 7:00 am
VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
Thanks for sharing.

I’m currently negotiating with Schwab for a transfer bonus, fee waiver on Vanguard mutual funds, and a PAL at or near the rate you quoted.

Waiting to hear back on the PAL.

Thank you
Tomorrow never knows.
JackoC
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Re: Line of credit secured by brokerage account

Post by JackoC »

Gill wrote: Mon Jun 22, 2020 5:44 pm Interest isn’t deductible, of course.
It's not quite 'of course'. The purpose of the borrowing has to be the purchase of investment assets for the interest to be deductible, and even then the amount of margin interest deductible is limited to the amount of non-qualified distributions received and can be further limited by holdings of municipal bonds (various threads have gotten into those limits in more detail). On the first point that does make it non-deductible if you directly use the loan for the 'classic' purpose of a DIY bridge loan to purchase real estate 'for cash' even though you'll eventually get a mortgage. You might however make margin loan interest deductible in that case as follows: liquidate investment assets to buy the house, but use a margin loan to buy other investment assets to replace them (with decent interval before or after, 'consult a professional' if in doubt, etc.). If, that is, you have the realized capital gains tax flexibility to do that. Sometimes margin loans are proposed specifically to avoid selling investment assets because they all have low tax basis. But if you can do this, and it's likely easier on a smaller amount, a margin loan can also be effectively deductible to purchase a car, which a dedicated car loan can't be. And of course even home mortgages are fully deductible in fewer cases now due to recent tax law changes.

Also you can simply achieve full deductibility on a margin loan buying investment real estate you put in a separate LLC. Then the interest is the LLC's business expense, wholly deductible. There are costs to setting up and running LLC's, but they have other benefits (asset protection from creditors). It's dicey though, at least, to try to do that with a property you actually plan in to live in.
MrJedi
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Re: Line of credit secured by brokerage account

Post by MrJedi »

I'm curious if anybody knows how much in assets you need to successfully negotiate a competitive margin rate with Fidelity. I strongly prefer to stay with Fidelity due to the tight integration with the Fidelity DAF. Margin rate is not enough to get me to move my assets (I will temporarily borrow from my 401k otherwise if I need an extra shot of cash rather than force taxable shares), but it would be a nice backup plan for large cash need to avoid a bunch of capital gains.
Average Investor
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Re: Line of credit secured by brokerage account

Post by Average Investor »

skibummer wrote: Sat Jun 19, 2021 7:00 am
VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
Thanks for posting this. You helped me negotiate the same rate for a PAL at Schwab. Thank you!
Tomorrow never knows.
RubyTuesday
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Re: Line of credit secured by brokerage account

Post by RubyTuesday »

Average Investor wrote: Tue Aug 24, 2021 3:35 pm
skibummer wrote: Sat Jun 19, 2021 7:00 am
VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
Thanks for posting this. You helped me negotiate the same rate for a PAL at Schwab. Thank you!
I’m about to embark on the same adventure.

Any details you can share on how you negotiated, and what rate and any transfer bonus you received?

Thanks!
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
OverAnalyze
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Re: Line of credit secured by brokerage account

Post by OverAnalyze »

whodidntante wrote: Mon Jun 22, 2020 1:45 pm I think everyone with a large taxable account should have margin or a pledged asset line setup as a convenient source of liquidity. The lowest margin rates for small time investors are at IB, and I doubt you will find anything better anywhere. But I've heard that Schwab and Morgan Stanley also offer good rates on pledged asset lines.
Can you do this with Vanguard?
skibummer
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Re: Line of credit secured by brokerage account

Post by skibummer »

VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I set up a PAL at Schwab (have significant amount already with them). I used IBKR margin rates to negotiate and Schwab gave me SOFR (0.05%) + 1.25%, so a 1.30% APR. 70% lend rate. So $1M will lend $700,000. Very easy.
cheerfulcharlie
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Re: Line of credit secured by brokerage account

Post by cheerfulcharlie »

dropdx wrote: Tue Aug 24, 2021 5:55 pm
whodidntante wrote: Mon Jun 22, 2020 1:45 pm I think everyone with a large taxable account should have margin or a pledged asset line setup as a convenient source of liquidity. The lowest margin rates for small time investors are at IB, and I doubt you will find anything better anywhere. But I've heard that Schwab and Morgan Stanley also offer good rates on pledged asset lines.
Can you do this with Vanguard?
You have to call Vanguard to add this feature to your brokerage account.

Vanguard's interest rates are super high, like 9%, so this would not be recommended with them (better to do this at a lower interest rate broker).

Vanguard's margin feature can be used to purchase additional securities on margin but not for just withdrawing cash -- unless you specifically call Vanguard and put in a special over-the-telephone order.

With my Interactive Broker's account however, I can withdraw cash any time I want and a margin loan is automatically generated (I can even use an ATM debit card to withdraw cash as well even if I have no cash in my cash account).

Since Interactive Broker's ("IB") has the lowest margin rates I could find, I did an ACATS transfer of one of my stock holdings from Charles Schwab to IB. I now have around $72k or so sitting in my IB account just so I can pull margin off of those securities. In other words, it's just an "emergency" fund or if I need some extra cash flow one month before my next paycheck arrives for some reason. That way, I can stay pretty much fully invested with my cash in the market. No need for me to leave a pile of useless cash sitting around as an emergency fund since I have this margin account just in case.

One day when I am retired, I will not have a paycheck anymore, so maybe I'll transfer another 100k of ETFs over to my IB account so that I'll have a bigger "emergency" fund for when I'm not ready to sell securities at that moment (e.g. maybe for when I'm close to the end of the year and I don't want to realize any more capital gains that year for tax purposes or whatever). Who knows? But, it just nice knowing that the credit line is there just in case whenever you need it (assuming you play it safe and don't go anywhere close to your margin limits).
OverAnalyze
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Re: Line of credit secured by brokerage account

Post by OverAnalyze »

cheerfulcharlie wrote: Tue Aug 24, 2021 6:11 pm
dropdx wrote: Tue Aug 24, 2021 5:55 pm
whodidntante wrote: Mon Jun 22, 2020 1:45 pm I think everyone with a large taxable account should have margin or a pledged asset line setup as a convenient source of liquidity. The lowest margin rates for small time investors are at IB, and I doubt you will find anything better anywhere. But I've heard that Schwab and Morgan Stanley also offer good rates on pledged asset lines.
Can you do this with Vanguard?
With my Interactive Broker's account however, I can withdraw cash any time I want and a margin loan is automatically generated (I can even use an ATM debit card to withdraw cash as well even if I have no cash in my cash account).
How much do you pay to have your Interactive Broker's account? What rates do you get?
Average Investor
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Re: Line of credit secured by brokerage account

Post by Average Investor »

RubyTuesday wrote: Tue Aug 24, 2021 5:07 pm
Average Investor wrote: Tue Aug 24, 2021 3:35 pm
skibummer wrote: Sat Jun 19, 2021 7:00 am
VoiceOfReason wrote: Mon Jun 22, 2020 1:33 pm My broker has reviewed with me a line of credit secured by my brokerage account. No credit check, no costs to have it setup. You get to borrow up to a certain % of the value of you taxable brokerage account to use for anything except securities trades.

They say people use this all the time for short term loans as a way to get access to $ without having to sell anything in the portfolio and thus creating a large capital gains event. They said this is what many wealthy people do to make “cash” offers on real estate. Then simultaneously get a mortgage on the property. Among many other things, buying cars, vacations, weddings, etc. and paying it back quickly especially for people that get larger quarterly or year end compensation.

At first I was very skeptical but the rates are very competitive. About the same rate of a 30 year fixed mortgage.

Curious what the consensus and experience have had with this line of credit.
I was able to negoitate a Pledged Asset Line with Schwab for $1M for 1.26%. The rate is based on SOFR (secured overnight funding rate) plus 1.25%. SOFR is currently 0.01%. SOFR is replacing LIBOR for many lending products. Being able to borrow funds at 1.26% is an incredible deal. If you pledge $1M in a pledged account at Schwab you can borrow up to 70% (they lend up to 96% for cash/bonds). Obviously you stay away from the 70% limit, but if I have $1M pledged with a LOC of $700,000 I don't plan on exceeding 25% of my LOC. That was a better rate than I could get from any of the major financial private banks as well when I approached them about transferring a mid-7 figure account.
Thanks for posting this. You helped me negotiate the same rate for a PAL at Schwab. Thank you!
I’m about to embark on the same adventure.

Any details you can share on how you negotiated, and what rate and any transfer bonus you received?

Thanks!
I just replied to your PM.

Bonus was a match for eTrade $3000. Based on the discussions with Schwab I probably could have received more.
Tomorrow never knows.
tj
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Re: Line of credit secured by brokerage account

Post by tj »

MrJedi wrote: Sat Aug 21, 2021 9:42 am I'm curious if anybody knows how much in assets you need to successfully negotiate a competitive margin rate with Fidelity. I strongly prefer to stay with Fidelity due to the tight integration with the Fidelity DAF. Margin rate is not enough to get me to move my assets (I will temporarily borrow from my 401k otherwise if I need an extra shot of cash rather than force taxable shares), but it would be a nice backup plan for large cash need to avoid a bunch of capital gains.
Could you not just grand your DAF to a DAF at Schwab Charitable?
AlohaJoe
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Re: Line of credit secured by brokerage account

Post by AlohaJoe »

dropdx wrote: Tue Aug 24, 2021 6:41 pm

How much do you pay to have your Interactive Broker's account? What rates do you get?
IBRK's fees and rates are posted online.

Rates vary based on the amount you borrow. Fees vary based on what you actually do in your account. If all you do is buy and sell ETFs, then you'll pay a small commission when you trade.
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Callisto
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Re: Line of credit secured by brokerage account

Post by Callisto »

IBKR probably has the best rates, and almost certainly will for regular investors.

I negotiated my rate down to 2.6% at Fidelity. Its still higher than what I'm getting at IBKR, but I own certain funds that cannot be moved in kind so I use both.
blackbird123
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Re: Line of credit secured by brokerage account

Post by blackbird123 »

Has anyone tried to negotiate the rate down for Vanguard? Seems like they arent really competitive here.
cheerfulcharlie
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Re: Line of credit secured by brokerage account

Post by cheerfulcharlie »

blackbird123 wrote: Mon Aug 30, 2021 12:51 pm Has anyone tried to negotiate the rate down for Vanguard? Seems like they arent really competitive here.
I have not but my first thought is why bother? Why not just do an ACATS transfer of a portion of your Vanguard holdings to Interactive Brokers to get this benefit straight from Interactive Brokers? My guess is that unless you are Bill or Jeff, then Vanguard isn't going to be likely to give you the same sweet low margin rates that Interactive Brokers offers. Then again, maybe I'm just too much a small fish to realize what could be negotiated with Vanguard. I understand that it would be advantageous to not mess with all this hassle of doing a transfer and splitting your assets but with Vanguard having such high margin rates, I can't imagine them negotiating them down to the territory of Interactive Brokers.

In my case, I just transferred over around $72k of securities from my taxable brokerage from Vanguard to IB to get a sort-of small emergency fund in the form of a margin loan account.
RubyTuesday
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Re: Line of credit secured by brokerage account

Post by RubyTuesday »

blackbird123 wrote: Mon Aug 30, 2021 12:51 pm Has anyone tried to negotiate the rate down for Vanguard? Seems like they arent really competitive here.
Haven’t heard of anyone negotiating lower rate with Vanguard, but multiple folks have negotiated with Schwab and Fidelity.

I have Schwab at effectively 1.3% (FFR + 1.05%)
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
nalor511
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Re: Line of credit secured by brokerage account

Post by nalor511 »

blackbird123 wrote: Mon Aug 30, 2021 12:51 pm Has anyone tried to negotiate the rate down for Vanguard? Seems like they arent really competitive here.
Vanguard doesn't negotiate anything, fees, bonus, rates - don't waste your time.
J295
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Re: Line of credit secured by brokerage account

Post by J295 »

Anyone used Wealthfront for a line of credit and are their rates negotiable and/or competitive?

We don’t have need for a line, but one of our adult children is going to use a line and he is at Wealthfront. Seven-figure account if it matters.

For some reason I seem to have resistance to IB. Maybe it’s just a retired 62 year old feeling more comfortable with names like that Fidelity and Schwab? Is my hesitancy misplaced?

Also, we are at Fidelity and I did look there and the rates are not competitive, but I see upthread their rates are negotiable. Good information and thanks for those who posted it.

Thanks in advance for any comments/insights.
sc9182
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Re: Line of credit secured by brokerage account

Post by sc9182 »

If you get right contact, both Fidelity, Schwab or ETrade -- currently offer great margin rates:

Fidelity - 1.25%
Schwab - 1.26%

Just say - was able to get ETrade margin just about: 1% (much better rate than: 1.25%)


Compared/negotiated based on each other brokerages' competitive rates (started comparing with IKBR Pro, and biltmoremarginlending ultra-low margin rates., but settled on ETrade's lowest final offered rate .. not sure we are ready to handle/deal with small brokerages/firms .. so chose ETrade with dedicated account team with direct-line)

** Not that anyone recommends trading/investing/mortgage-payoff/car-purchase etc based on Margin (ie, paying long term rate with riskier/oft-changing short-term margin rates), besides the pesky margin calls when markets go thru gyrations. But for select few folks these ultra-low negotiated margin rates might come in handy toward short-term needs and in limited-amounts (do address your own portfolio/risk profiles).
Last edited by sc9182 on Tue Aug 31, 2021 8:31 am, edited 2 times in total.
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JoMoney
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Re: Line of credit secured by brokerage account

Post by JoMoney »

I lean closer to Dave Ramsey's risk profile. High equity allocation, but no debt.
If you need to take a mortgage for your personal residence, that's acceptable in many situations, but otherwise No.
It makes (less than) zero sense to me to hold debt at even very low interest rates while simultaneously holding low interest paying cash/bonds. Leveraging up an otherwise all-equity portfolio hoping to game taxes sounds like taking extra unnecessary risks for something that's as likely to come back around and bite them in the ASSets. Leverage is very risky (an unnecessary risk), and messing around with taxes is a recipe for potential disaster.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
harikaried
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Re: Line of credit secured by brokerage account

Post by harikaried »

Callisto wrote: Tue Aug 24, 2021 11:04 pmI negotiated my rate down to 2.6% at Fidelity
What process did you contact to negotiate margin rate and did you see if Fidelity's PAL (through Goldman Sachs or US Bank) had lower rates?
nalor511
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Re: Line of credit secured by brokerage account

Post by nalor511 »

sc9182 wrote: Tue Aug 31, 2021 8:19 am If you get right contact, both Fidelity, Schwab or ETrade -- currently offer great margin rates:

Fidelity - 1.25%
Schwab - 1.26%

How much did you need in taxable collateral to negotiate these rates? Fido quoted me 1.5% with $1mil collateral which I didn't have and wouldn't have paid that rate anyway :greedy
Tuco
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Re: Line of credit secured by brokerage account

Post by Tuco »

There was a flurry of articles (WSJ and elsewhere) this summer detailing how billionaires used security backed lines of credit to avoid cap gains tax. The articles were vague on repayment of the loans. Is the intent that the loans aren't repaid until death, at which time the step up in basis allows their estates to sell and repay at a more favorable tax position? Or do their lenders allow payment via the transfer of appreciated securities? Or do they just repay these loans every five years or so and start anew? Appreciate and insights from the group, thanks.
MrJedi
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Re: Line of credit secured by brokerage account

Post by MrJedi »

Tuco wrote: Sun Sep 19, 2021 9:42 pm There was a flurry of articles (WSJ and elsewhere) this summer detailing how billionaires used security backed lines of credit to avoid cap gains tax. The articles were vague on repayment of the loans. Is the intent that the loans aren't repaid until death, at which time the step up in basis allows their estates to sell and repay at a more favorable tax position? Or do their lenders allow payment via the transfer of appreciated securities? Or do they just repay these loans every five years or so and start anew? Appreciate and insights from the group, thanks.
Margin loans generally don't have any kind of repayment terms as long as you are meeting the maintenance margin. The main ideas as you say are to avoid taxable selling events and also some people like the extra leverage.
SQRT
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Re: Line of credit secured by brokerage account

Post by SQRT »

I’ve used margin loans in the past and my accounts are all still margin enabled. I need to liquidate some securities in order to rebuild one of our residences. The div yield on the stock I would sell is a lot more than the interest rate on the margin loan. Furthermore, I don’t really like current pricing on the stock. So I will draw on the loan. It will be a small percentage of my portfolio, maybe 10-15% so I am not worried about a margin call.
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