| Margin loan | Bank-issued securities-based line of credit (SBLOC) | Home equity line of credit (HELOC) | |
|---|---|---|---|
| Assets used as collateral | Eligible securities in most nonretirement accounts | Eligible securities, as determined by the bank, held in a separate pledged brokerage account | Real estate, including your primary residence and second home |
| Minimum collateral requirement | Typically, $2,000; some brokers may require more | Varies; Many lenders require a minimum loan value of collateral of $100,000 | Established by the lender and typically based on the requested line amount, the associated home value, and ability to repay loan |
|
Upfront fees and costs |
None |
None |
Yes; Origination fees and closing costs |
| Borrowing limits | Typically, 50% of the assets' value | Based on the loan value of eligible pledged securities, which is typically up to 70% of their current market value | A percentage of the appraised value of the home minus the mortgage value determined by the lender |
| Maintenance requirements | Typically, 30% of the assets' market value (You may face a maintenance call if your margin account balance falls below the requirement.) | Varies; Some banks require the collateral to have a loan value equal to or exceeding the greater of $100,000 or the amount of the outstanding loans (You may face a demand for repayment should the value of the pledged assets depreciate.) | N/A |
| Terms | Revolving line of credit, meaning no set draw or repayment periods | Typically, a revolving line of credit | Typically, revolving line of credit with a 10‐year draw period followed by a 20‐year repayment period |
|
Interest |
Interest accrues daily upon account open and is charged monthly on the amount borrowed until the loan is repaid. Principal may be paid at any time. |
Interest begins to accrue when funds are withdrawn and is charged until the loan is repaid or the bank calls a demand. Principal may be paid at any time. |
Interest begins to accrue when funds are withdrawn and is charged until the loan is repaid. During the draw period, you typically make interest-only payments. During the repayment period, you owe both interest and principal. |
| Approved uses | Any lawful purpose for margin | Most lawful purposes other than securities purchases or margin repayment | Acceptable for most purposes, but check with your financial consultant |
| Ideal uses |
✔️ Stock purchases ✔️ Short-term liquidity needs ❌ Long-term liquidity needs ✔️ Paying taxes |
❌ Stock purchases ✔️ Short- or long-term liquidity needs ✔️ Paying taxes ✔️ Bridge financing or income smoothing |
✔️ Stock purchases ✔️ Short- or long-term liquidity needs ✔️ Paying taxes ✔️ Debt consolidation ✔️ Home improvements |
Disclosure Title
Source:
Schwab Center for Financial Research.
For illustrative purposes only. Individual situations will vary.