Line of credit secured by brokerage account

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Callisto
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Re: Line of credit secured by brokerage account

Post by Callisto »

harikaried wrote: Sun Sep 19, 2021 8:50 pm
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?
I just called the general customer service number and they were able to redirect me. It seems this negotiation is not unusual and the customer service reps know exactly where to send you.
harikaried
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Re: Line of credit secured by brokerage account

Post by harikaried »

Callisto wrote: Mon Sep 20, 2021 3:11 pmIt seems this negotiation is not unusual and the customer service reps know exactly where to send you.
Hmm. I guess the person I just talked to didn't think it's common or allowed. The response was that the other rate 1.25% sounds much better than Fidelity's 6.575%, and Fidelity encourages their customers to do what's best for the customer. Maybe I'll try again another time.
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Beensabu
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Re: Line of credit secured by brokerage account

Post by Beensabu »

"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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cflannagan
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Re: Line of credit secured by brokerage account

Post by cflannagan »

Beensabu wrote: Mon Sep 20, 2021 8:38 pm Think twice.

https://fred.stlouisfed.org/series/BOGZ1FL663067003Q
What am I looking at? I'm guessing, the graph line in the chart is showing investors in US is borrowing on margin much more than the past?
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Beensabu
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Re: Line of credit secured by brokerage account

Post by Beensabu »

cflannagan wrote: Mon Sep 20, 2021 10:38 pm
Beensabu wrote: Mon Sep 20, 2021 8:38 pm Think twice.

https://fred.stlouisfed.org/series/BOGZ1FL663067003Q
What am I looking at? I'm guessing, the graph line in the chart is showing investors in US is borrowing on margin much more than the past?
Yes. Additionally, the recent increase year over year, the likes of which have previously preceded a margin peak prior to dun dun dun. The chart stops as 2021 Q1, but there has been a pullback as of July. There is a serious risk associated with what people are doing, especially in the current environment, but they don't seem to recognize that for some reason.
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andypanda
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Re: Line of credit secured by brokerage account

Post by andypanda »

Does the graph cover both types of margin loans - the high interest brokerage loans that may be used to buy securities and the lower interest secured asset loans that may not under any circumstances be used to buy securities?

I signed a bank form that clearly stated that I agreed the secured asset loan was not for investment purposes.
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Beensabu
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Re: Line of credit secured by brokerage account

Post by Beensabu »

andypanda wrote: Tue Sep 21, 2021 8:33 am Does the graph cover both types of margin loans - the high interest brokerage loans that may be used to buy securities and the lower interest secured asset loans that may not under any circumstances be used to buy securities?
I don't know. I do know that the FINRA numbers are higher.

Does it matter which type it is if you are borrowing against assets that you are allowing someone else to potentially partially liquidate at a lower price? It can essentially become forced panic selling.
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andypanda
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Re: Line of credit secured by brokerage account

Post by andypanda »

I'm curious if all that money is being borrowed and then dumped into the market or if some or most of it is being used to buy second homes, RVs, etc.

Just having a chart about 'margin' doesn't tell me much.
harikaried
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Re: Line of credit secured by brokerage account

Post by harikaried »

Beensabu wrote: Mon Sep 20, 2021 8:38 pmThink twice. https://fred.stlouisfed.org/series/BOGZ1FL663067003Q
Hmm that millions of dollars on margin graph probably wants other graphs for context. Here's the Federal Funds Rate, which recently has been basically 0% enticing people to want to use margin at a low rate.

https://fred.stlouisfed.org/series/FEDFUNDS

But also hard to tell if margin balances have increased because equities have gone up since last year?
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Beensabu
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Re: Line of credit secured by brokerage account

Post by Beensabu »

andypanda wrote: Tue Sep 21, 2021 1:34 pm I'm curious if all that money is being borrowed and then dumped into the market or if some or most of it is being used to buy second homes, RVs, etc.
Why does it make a difference what it is being used for?
Just having a chart about 'margin' doesn't tell me much.
Sure it does. It's a giant spike. Risky behavior around debt. Increasing. Hugely. Regardless of the intended usage, it's a symptom.

These threads have been getting revived and popping up recently. There are more and more takers out there reading that don't post, and they are all the last to know. People who don't understand what margin debt entails are going to be enticed into using it at the tail end of the run, just like what always happens. And they will get screwed. That's not cool.

They need to know: When you take on margin debt, you are handing someone the ability to liquidate your assets without your permission if they see fit to do so. And they will do so if they think they need to in order to protect their investment (i.e. the money they lent you). Anybody who doesn't understand that yet needs to.
harikaried wrote: Wed Sep 22, 2021 3:28 pm
Beensabu wrote: Mon Sep 20, 2021 8:38 pmThink twice. https://fred.stlouisfed.org/series/BOGZ1FL663067003Q
Hmm that millions of dollars on margin graph probably wants other graphs for context. Here's the Federal Funds Rate, which recently has been basically 0% enticing people to want to use margin at a low rate.

https://fred.stlouisfed.org/series/FEDFUNDS

But also hard to tell if margin balances have increased because equities have gone up since last year?
Sure. Also hard to tell if equities have gone up because margin balances have increased.

Have margin balances increased to this extent every other time that equities have gone up for a year? No? Okay. When have margin balances increased to this extent year over year?

This is not something you want to do if you're just now hearing about it. Think twice.
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andypanda
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Re: Line of credit secured by brokerage account

Post by andypanda »

"Why does it make a difference what it is being used for?"

Isn't it obvious? I suppose not. If it's being used to purchase equities those trillions are likely pushing up stock prices. If it's used to buy cars, houses, art and very large boats - or whatever - it probably isn't.
Maybe that's not important to you.

And seriously, what's all the doom and gloom about all margin loans? If someone borrows against 10% or maybe 15% of their portfolio and buys a $500k beach cottage for cash they don't appear to be overextended. And they can always sell the cottage or live in it. Or get a mortgage.
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Beensabu
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Re: Line of credit secured by brokerage account

Post by Beensabu »

andypanda wrote: Wed Sep 22, 2021 7:27 pm "Why does it make a difference what it is being used for?"

Isn't it obvious? I suppose not. If it's being used to purchase equities those trillions are likely pushing up stock prices. If it's used to buy cars, houses, art and very large boats - or whatever - it probably isn't.
Maybe that's not important to you.
Yes.
Beensabu wrote: Wed Sep 22, 2021 7:14 pm Also hard to tell if equities have gone up because margin balances have increased.
That's not what matters to me here in this thread, though. What matters to me is putting a big red sign up for the people who have no business messing around with this. Taking your example below, that's everyone who doesn't have a $5m brokerage account.
And seriously, what's all the doom and gloom about all margin loans? If someone borrows against 10% or maybe 15% of their portfolio and buys a $500k beach cottage for cash they don't appear to be overextended. And they can always sell the cottage or live in it. Or get a mortgage.
That's not everyone. Not everyone reading these threads realizes that is the situation of the cautious people taking on these loans, or that those cautious people are borrowing against fixed income assets rather than equities. And no, you do not always get the chance to sell the thing you bought with the money or find alternate financing and pay the loan back before they sell your assets for you. When push comes to shove, they decide, not you.

There needs to be at least one voice on every one of these threads that says "think twice", at least once. So I've said it a few times. Thanks for tolerating me. Carry on.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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cchrissyy
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Re: Line of credit secured by brokerage account

Post by cchrissyy »

There needs to be at least one voice on every one of these threads that says "think twice", at least once. So I've said it a few times. Thanks for tolerating me. Carry on.
I appreciate this!

I have this product, it's useful and the rate is impressive but it is not appropriate for anything you can't afford to pay back immediately if the situation changes.

The broker takes complete control to change the reference index, the rate spread, the collateral requirement, etc, and to liquidate you without notification for not meeting their new rules. That's a big deal.

In my opinion, people should not consider pledging their only brokerage account, or using more than half of the available line.
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harikaried
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Re: Line of credit secured by brokerage account

Post by harikaried »

andypanda wrote: Wed Sep 22, 2021 7:27 pmIf it's being used to purchase equities those trillions are likely pushing up stock prices
The more relevant aspect is probably margin used to buy equities magnifies the margin call risk. Whereas margin used to buy other stuff / pay down other debt also has the "normal" margin call risk.
Budgetwise
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Re: Line of credit secured by brokerage account

Post by Budgetwise »

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.
I tried to negotiate a lower rate w Schwab than their published rate for a PAL, but they said they would only do it if I could quote them an offer (ideally in writing) for a better rate on a LOC - AND the rep said margin rates such as at Interactive Brokers were not deemed sufficiently comparable. Am I just a bad negotiator? Anyone have any experience they can offer that would help? I have significant assets w Schwab.
landon
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Re: Line of credit secured by brokerage account

Post by landon »

Budgetwise wrote: Fri Nov 12, 2021 2:37 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.
I tried to negotiate a lower rate w Schwab than their published rate for a PAL, but they said they would only do it if I could quote them an offer (ideally in writing) for a better rate on a LOC - AND the rep said margin rates such as at Interactive Brokers were not deemed sufficiently comparable. Am I just a bad negotiator? Anyone have any experience they can offer that would help? I have significant assets w Schwab.
I just opened a PAL at Schwab and was only able to get down to 1.5% + SOFR, but I asked for 1.25% + SOFR noting that I'd heard of others getting rates this low. Our Loan Value of Collateral will be a bit over $1.8M.

I used the IBKR rates and noted that I'd be able to get 1.14% with IBKR. I got a similar response from the representative as you—that margin loans like this are a different product, and can't really be compared apples to apples or something like that.

I spoke with two people and the first said that 1.5% may be as low as they could go, but this person was in the wrong geographical area. I'd have to talk to the person in my area to get the real rate. By the time I spoke to the second person, the 1.5% rate had already "been approved" by whatever department. I asked again about lower, but "for this type of loan" or "the details that were given" (bridge loan for home purchase), this was all they could do. I guess I could have asked them to go back and try for lower, but I didn't.
calwatch
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Re: Line of credit secured by brokerage account

Post by calwatch »

The alternative is to sell box spreads, as detailed in the box spread thread. viewtopic.php?f=10&t=344667
TXDoc21
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Re: Line of credit secured by brokerage account

Post by TXDoc21 »

Thank you for posting this. It seems like a perfect situation for a short term use of funds, but trying to stay away from the max they will let you take out.
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