Delayed Financing with a margin loan

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carne_asada
Posts: 17
Joined: Sat Aug 03, 2019 7:38 am

Delayed Financing with a margin loan

Post by carne_asada »

Has anyone here used a margin loan to cover the initial purchase of a home as part of a delayed financing mortgage?

The plan would be to take out the margin loan to cover the purchase and then repay the margin loan as as soon as I received cash out from the mortgage. This would let me compete in my housing market as an all cash buyer without actually having to liquidate a large chunk of my portfolio to do so.
LFS1234
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Joined: Fri Feb 08, 2019 4:13 am

Re: Delayed Financing with a margin loan

Post by LFS1234 »

carne_asada wrote: Sat Oct 17, 2020 1:38 pm Has anyone here used a margin loan to cover the initial purchase of a home as part of a delayed financing mortgage?

The plan would be to take out the margin loan to cover the purchase and then repay the margin loan as as soon as I received cash out from the mortgage. This would let me compete in my housing market as an all cash buyer without actually having to liquidate a large chunk of my portfolio to do so.
Talk to an accountant before you do this. My concern is that this maneuver might disqualify the mortgage interest from being deductible.

It is my understanding that in order for the interest on the loan to be deductible, the loan would have to be secured by the house. This would not be the case if you buy the house using a margin loan, since that's secured by your stocks and not by the house.

It is also my understanding that in order for the interest to be deductible, mortgage debt must be used to "buy, build or improve" your home or to refinance existing qualifying debt, or for some other qualified purpose. Since you'd be refinancing debt which is not secured by the house and therefore does not qualify as deductible mortgage debt, this might technically disqualify you from being able to deduct interest from your mortgage once you get one.

I am not a CPA or tax attorney and I may be misreading this or missing something. However, if I were in your position, I would want the opinion of a CPA or tax attorney before proceeding with your plan.
Tingting1013
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Re: Delayed Financing with a margin loan

Post by Tingting1013 »

LFS1234 wrote: Sun Oct 18, 2020 6:02 am It is also my understanding that in order for the interest to be deductible, mortgage debt must be used to "buy, build or improve" your home or to refinance existing qualifying debt, or for some other qualified purpose. Since you'd be refinancing debt which is not secured by the house and therefore does not qualify as deductible mortgage debt, this might technically disqualify you from being able to deduct interest from your mortgage once you get one.
Incorrect.

The margin loan has no official connection to the house. It doesn’t show up on any credit report. When applying for the mortgage, as far as the bank is concerned the house is owned free and clear.
Last edited by Tingting1013 on Sun Oct 18, 2020 7:34 am, edited 1 time in total.
ScaledWheel
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Joined: Sat Jul 23, 2011 8:06 pm

Re: Delayed Financing with a margin loan

Post by ScaledWheel »

LFS1234 wrote: Sun Oct 18, 2020 6:02 am Talk to an accountant before you do this. My concern is that this maneuver might disqualify the mortgage interest from being deductible.
I know that HELOCs are no longer deductible if they are taken out after purchase, but I think a primary mortgage would still be deductible. Definitely worth talking to a CPA or mortgage broker about. If the mortgage interest is not deductible but the mortgage is small enough that any interest won't move the needle from a tax deduction standpoint (due to the SALT deduction limits and newer standard deduction), then I think it's a reasonable and clever approach.

Out of curiosity, which brokerage are you using for the margin loan? My money is in Fidelity and their rates seemed high (4% only if your brokerage is >$1MM).
ScaledWheel
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Re: Delayed Financing with a margin loan

Post by ScaledWheel »

Tingting1013 wrote: Sun Oct 18, 2020 7:27 am The margin loan has no official connection to the house. It doesn’t show up on any credit report. When applying for the mortgage, as far as the bank is concerned the house is owned free and clear.
Would taking out a mortgage on the house after purchase be considered a "refinance" in the eyes of the lender and be subject to the 0.25% refinance fee being put into place after December 1?

https://www.fhfa.gov/Media/PublicAffair ... ber-1.aspx
Tingting1013
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Re: Delayed Financing with a margin loan

Post by Tingting1013 »

ScaledWheel wrote: Sun Oct 18, 2020 7:37 am
Tingting1013 wrote: Sun Oct 18, 2020 7:27 am The margin loan has no official connection to the house. It doesn’t show up on any credit report. When applying for the mortgage, as far as the bank is concerned the house is owned free and clear.
Would taking out a mortgage on the house after purchase be considered a "refinance" in the eyes of the lender and be subject to the 0.25% refinance fee being put into place after December 1?

https://www.fhfa.gov/Media/PublicAffair ... ber-1.aspx
Yes
mpsz
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Re: Delayed Financing with a margin loan

Post by mpsz »

ScaledWheel wrote: Sun Oct 18, 2020 7:32 am Out of curiosity, which brokerage are you using for the margin loan? My money is in Fidelity and their rates seemed high (4% only if your brokerage is >$1MM).
You can take out margin loans at 2% from M1 or 1.59% or lower at IBKR.
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whodidntante
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Re: Delayed Financing with a margin loan

Post by whodidntante »

If you can ride through the election with a securities secured loan I guess I'm wondering why you would get a mortgage at all.
clemrick
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Re: Delayed Financing with a margin loan

Post by clemrick »

Tingting1013 wrote: Sun Oct 18, 2020 7:27 am
LFS1234 wrote: Sun Oct 18, 2020 6:02 am It is also my understanding that in order for the interest to be deductible, mortgage debt must be used to "buy, build or improve" your home or to refinance existing qualifying debt, or for some other qualified purpose. Since you'd be refinancing debt which is not secured by the house and therefore does not qualify as deductible mortgage debt, this might technically disqualify you from being able to deduct interest from your mortgage once you get one.
Incorrect.

The margin loan has no official connection to the house. It doesn’t show up on any credit report. When applying for the mortgage, as far as the bank is concerned the house is owned free and clear.
LFS1234 is referring to IRS regulations for deducting mortgage interest.

IRS Pub. 936: "Home equity loan interest. No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home."

and
"Refinanced home acquisition debt.
Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt. "

Since the OP will essentially be doing a "cash out" mortgage to pay off the margin loan and not an original mortgage, the interest will not be deductible.
VCC
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Re: Delayed Financing with a margin loan

Post by VCC »

Per Pub. 936 under Home Acquisition Debt you have 90 days after you buy the home to take out a mortgage & it will be considered fully deductible home acquisition debt. It gives an example of someone taking out a mortgage within 90 days & using the proceeds to buy stocks & it is still considered home acquisition debt & fully deductible.
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