Margin Loan instead of Mortgage.

[newyorker]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

[RubyTuesday]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

You should be able to review the margin rules in detail… They could vary based on your location (country), the exchange, and the assets.

Also, keep in mind IBKR margin rate is a variable blended rate likely tied to a benchmark rate, maybe either SOFR or FFR.

[London]

Margin terms are subject to change by the provider. That’s not to say you shouldn’t do it. Just go into it with your eyes open.

[willthrill81]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

[newyorker]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

You should be able to review the margin rules in detail… They could vary based on your location (country), the exchange, and the assets.

Also, keep in mind IBKR margin rate is a variable blended rate likely tied to a benchmark rate, maybe either SOFR or FFR.

Isnt all margin rate variable?

[newyorker]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

I am doing this for some quick cash

[RubyTuesday]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

You should be able to review the margin rules in detail… They could vary based on your location (country), the exchange, and the assets.

Also, keep in mind IBKR margin rate is a variable blended rate likely tied to a benchmark rate, maybe either SOFR or FFR.

Isnt all margin rate variable?

Yes, I suspect most if not all margin is variable rate, and likely tied to the shortest rates (overnight). The rate has likely tripled in the last 6 months.

[RubyTuesday]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

I am doing this for some quick cash

Paying back in 5 years is not IMO quick. Lots of interest rate and pricing risk. If you understand the risks and have resources to cash flow margin requirements in the worst case, then give it a shot. Based on the OP, I’m doubtful it’s a good idea.

[willthrill81]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

I am doing this for some quick cash

Paying back in 5 years is not IMO quick. Lots of interest rate and pricing risk. If you understand the risks and have resources to cash flow margin requirements in the worst case, then give it a shot. Based on the OP, I’m doubtful it’s a good idea.

Agreed. This is NOT a good way to make a quick buck.

[newyorker]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

I am doing this for some quick cash

Paying back in 5 years is not IMO quick. Lots of interest rate and pricing risk. If you understand the risks and have resources to cash flow margin requirements in the worst case, then give it a shot. Based on the OP, I’m doubtful it’s a good idea.

Agreed. This is NOT a good way to make a quick buck.

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

[willthrill81]

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

I am doing this for some quick cash

Paying back in 5 years is not IMO quick. Lots of interest rate and pricing risk. If you understand the risks and have resources to cash flow margin requirements in the worst case, then give it a shot. Based on the OP, I’m doubtful it’s a good idea.

Agreed. This is NOT a good way to make a quick buck.

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

[Hyperchicken]

This has to be the most financially conservative place on the Internet.

Borrowing 25% of one's portfolio's value? And the borrowed amount is 6 months of after-tax income? Yep, recklessly risky because "margin bad". /s

[willthrill81]

This has to be the most financially conservative place on the Internet.

Borrowing 25% of one's portfolio's value? And the borrowed amount is 6 months of after-tax income? Yep, recklessly risky because "margin bad". /s

Buying stocks on margin is NOT a good way to 'make some quick cash'.

[newyorker]

I am doing this for some quick cash

Paying back in 5 years is not IMO quick. Lots of interest rate and pricing risk. If you understand the risks and have resources to cash flow margin requirements in the worst case, then give it a shot. Based on the OP, I’m doubtful it’s a good idea.

Agreed. This is NOT a good way to make a quick buck.

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

Why is it risky? Can you explain??

Say that I have 1.2M at IBKR and borrow 300k for 5 years at margin. Is that unsafe? As long as margin call doesnt happen, I can enjoy lower interest rate?

[newyorker]

This has to be the most financially conservative place on the Internet.

Borrowing 25% of one's portfolio's value? And the borrowed amount is 6 months of after-tax income? Yep, recklessly risky because "margin bad". /s

Buying stocks on margin is NOT a good way to 'make some quick cash'.

No man. I meant quick cash as in having access to quick cash. I dont plan to invest that money back into stock.

[newyorker]

Can anyone tell me what is approximate percentage of margin maintenance is for S&P ETF?

[willthrill81]

Paying back in 5 years is not IMO quick. Lots of interest rate and pricing risk. If you understand the risks and have resources to cash flow margin requirements in the worst case, then give it a shot. Based on the OP, I’m doubtful it’s a good idea.

Agreed. This is NOT a good way to make a quick buck.

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

Why is it risky? Can you explain??

Look at what happened to VOO 30 months ago.

[newyorker]

Agreed. This is NOT a good way to make a quick buck.

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

Why is it risky? Can you explain??

Look at what happened to VOO 30 months ago.

You mean 30 percent drop? Is it high enough to cause margin call?

[willthrill81]

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

Why is it risky? Can you explain??

Look at what happened to VOO 30 months ago.

You mean 30 percent drop? Is it high enough to cause margin call?

That depends on the requirements of the broker.

[newyorker]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

[cchrissyy]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

if your broker is willing to lend you 70% of the portfolio value, then you aren't in trouble borrowing $300k until your $1.2m falls to $428k.

or until the rules change, which the brokerage has the right to do at any time.

i don't have IBKR. i am just speaking in general.

i would feel ok doing what you are doing but try not to leave it all 5 years. or at least have a plan to quickly pay off if rates rise more than you like. but i think your plan is fine to have money to easily buy a house and you can take your time getting a mortgage later if you want a fixed rate and term.

[newyorker]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

if your broker is willing to lend you 70% of the portfolio value, then you aren't in trouble borrowing $300k until your $1.2m falls to $428k.

or until the rules change, which the brokerage has the right to do at any time.

i don't have IBKR. i am just speaking in general.

i would feel ok doing what you are doing but try not to leave it all 5 years. or at least have a plan to quickly pay off if rates rise more than you like. but i think your plan is fine to have money to easily buy a house and you can take your time getting a mortgage later if you want a fixed rate and term.

Finally! Thank you for giving me some insight!!

[muffins14]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

I would not leverage more than 20% of my portfolio

I think once you approach 25-30% leverage, a 60% drop in stocks could margin call you, but I don’t recall the exact formula

[pizza8822]

An idea to consider would be way out of the money puts on SPY, or whatever ETFs you might hold. The puts would skyrocket in value during a market crash and protect your margin downside. Calculate how much those cost for a couple years and add that to your expected interest cost. You can limit blowup risk with puts that match your ETF holdings.

[Silly Wabbit]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

Do the math?

Seriously though, margin requirements vary by brokerage and account type (reg-t vs portfolio). Let's say you've got a reg-t account without any extra broker applied requirements, the maintenance margin requirement is 25%.

Borrow and withdraw 25% against a $1.2m portfolio for an initial state of: equity: 900k, portfolio value: 1200k, cash: 300k. Question is, what's the maximum drawdown before your equity hits 25%. In other words, when will your portfolio hit 400k, yeah? (400-300)/400=.25. 1-(400/1200)=.66.

A 66% drop and you'd be on the verge of a margin call.

Formulaically, the max drawdown for a borrow % (B) and a maintenance margin requirement (M) is: =100%-(B/(100%-M))

[newyorker]

An idea to consider would be way out of the money puts on SPY, or whatever ETFs you might hold. The puts would skyrocket in value during a market crash and protect your margin downside. Calculate how much those cost for a couple years and add that to your expected interest cost. You can limit blowup risk with puts that match your ETF holdings.

How do I even do that? I guess that works like an insurance?

[newyorker]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

Do the math?

Seriously though, margin requirements vary by brokerage and account type (reg-t vs portfolio). Let's say you've got a reg-t account without any extra broker applied requirements, the maintenance margin requirement is 25%.

Borrow and withdraw 25% against a $1.2m portfolio for an initial state of: equity: 900k, portfolio value: 1200k, cash: 300k. Question is, what's the maximum drawdown before your equity hits 25%. In other words, when will your portfolio hit 400k, yeah? (400-300)/400=.25. 1-(400/1200)=.66.

A 66% drop and you'd be on the verge of a margin call.

Formulaically, the max drawdown for a borrow % (B) and a maintenance margin requirement (M) is: =100%-(B/(100%-M))

What is reg t and portfolio? What does a regular taxable account count as?

[newyorker]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

Do the math?

Seriously though, margin requirements vary by brokerage and account type (reg-t vs portfolio). Let's say you've got a reg-t account without any extra broker applied requirements, the maintenance margin requirement is 25%.

Borrow and withdraw 25% against a $1.2m portfolio for an initial state of: equity: 900k, portfolio value: 1200k, cash: 300k. Question is, what's the maximum drawdown before your equity hits 25%. In other words, when will your portfolio hit 400k, yeah? (400-300)/400=.25. 1-(400/1200)=.66.

A 66% drop and you'd be on the verge of a margin call.

Formulaically, the max drawdown for a borrow % (B) and a maintenance margin requirement (M) is: =100%-(B/(100%-M))

This chart is really interesting


So to keep it simple, say I have 1M in VOO
Maintenance margin is 40 percent
And I borrow 300k
If it drops 50 percent, margin call happens?

What happens when margin call happens? All my stocks get liquidated? Or do i have time to pay back?

[muffins14]

Assume you are automatically liquidated to the point that you again meet the margin requirements.

[sc9182]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

Do the math?

Seriously though, margin requirements vary by brokerage and account type (reg-t vs portfolio). Let's say you've got a reg-t account without any extra broker applied requirements, the maintenance margin requirement is 25%.

Borrow and withdraw 25% against a $1.2m portfolio for an initial state of: equity: 900k, portfolio value: 1200k, cash: 300k. Question is, what's the maximum drawdown before your equity hits 25%. In other words, when will your portfolio hit 400k, yeah? (400-300)/400=.25. 1-(400/1200)=.66.

A 66% drop and you'd be on the verge of a margin call.

Formulaically, the max drawdown for a borrow % (B) and a maintenance margin requirement (M) is: =100%-(B/(100%-M))

This chart is really interesting


So to keep it simple, say I have 1M in VOO
Maintenance margin is 40 percent
And I borrow 300k
If it drops 50 percent, margin call happens?

What happens when margin call happens?

All my stocks get liquidated? Or do i have time to pay back?

Could Happen anyway broker decides. IKBR usually trigger happy to sell - other brokers usually try to contact you so that you can refill/wire account with more monies (or sell stocks of your choice). IKBR is apparently rather trigger happy once margin requirement hits - to sell your stocks their algo decides (you won’t have control or time to react)

Having said that: a 20-25% margin is very un-likely to be called; even if they do - just have HELOC line ready - so that you can wire some quick cash to brokerage..

[Starfish]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

There is a thing on your computer called google:
https://www.interactivebrokers.com/en/g ... %20at%20IB.

They say IBKR has no margin calls.
Given the low interest rates I would think they are pretty conservative.

[pizza8822]

An idea to consider would be way out of the money puts on SPY, or whatever ETFs you might hold. The puts would skyrocket in value during a market crash and protect your margin downside. Calculate how much those cost for a couple years and add that to your expected interest cost. You can limit blowup risk with puts that match your ETF holdings.

How do I even do that? I guess that works like an insurance?

I would either recommend reading a lot, somewhere other than a message board, or skipping your plan entirely and take out the money you need from your account (with no margin). You probably have a few dozen hours of things to read/understand. You likely will not gain much excess wealth by keeping the extra $300k in the account for a few years. And who knows, what if the market is down or flat over those years? You would have gained nothing, and potentially lost your fortune. Once you have some wealth, catastrophic risk is the number one thing to avoid. Taking out a margin loan without fully understanding how it works, adds catastrophic risk to your account.

[willthrill81]

Taking out a margin loan without fully understanding how it works, adds catastrophic risk to your account.

Absolutely.

[AlohaJoe]

I am thinking of borrowing $300k with 1.2M worth of VOO in IBKR. Lower interest rate and I plan to pay it back in 5 years or so.

What risks am I taking? I heard about maintenance margin where once my portfolio drops below certain level, I am screwed. When does margin call happen with VOO?

Leverage of any sort, including margin, makes the good times better but also makes the bad times worse.

If something like the -52% drawdown that occurred in the GFC happened again, your losses would be even greater due to the leverage, the interest expense, and any fees.

Have you considered buying a leveraged ETF instead? They have their own cons too, but at least your losses are limited to investment.

First I want to say that OP clearly isn't knowledgeable enough (yet, at least) to be doing this any time soon.

That said, I think the drawdown & margin call risks are being overstated in this thread for the OP's situation.

The OP says they are planning on paying it off in five years. That still exposes them to a fair amount of interest rate risk (I'd have to run some numbers to know more about what I think about it; presumably they are considering this to avoid selling something and generating capital gains so that would also need to be factored in) but it also means they are deleveraging so fast that their risk of a margin call is pretty low and I think most posters are overlooking that.

The -52% drawdown during the GFC didn't happen overnight. They never do, really. It took from November 2007 to February 2009 to happen. Let's do some rough math. (I'm using monthly numbers from portfoliovisualizer, which isn't really the right thing with margin calls where daily (and intra-daily) movements are more important. But still, this is a rough cut, back of the envelope kind of thing.)

First, let's say the OP borrows $100,000 and is planning on paying $20,000 a year or $1,666 a month. Let's assume the have the worst luck in history and start this on November 2007 at the market peak. And let's assume they borrow slightly less than the absolute maximum Reg T amount. Say they leverage 40%. Which most people (myself included!) would say is pretty insane. The OP is talking about 33%.

But it actually still works out fine, due to their very fast deleveraging.

Here's their leverage percentage at the start of each month:

• Nov 2007: 40%, we started out with this, right.
• Dec 2007: 41.01%
• Jan 2008: 40.38%
• Feb 2008: 42.06%
• Mar 2008: 42.42%
• Apr 2008: 41.70%
• May 2008: 38.79%
• June 2008: 37.09%
• July 2008: 39.41%
• Aug 2008: 38.72%
• Sep 2008: 37.14%
• Oct 2008: 39.86%
• Nov 2008: 47.08%
• Dec 2008: 49.70%
• Jan 2009: 47.40%
• Feb 2009: 50.14%
• Mar 2009: 44.75%

(at that point the market bounces back and there's no further risk of margin calls)

Technically they go above 50% in February 2009. But let's be realistic about the size of that margin call. The broker is going to ask for $158 on a $109,000 portfolio.

What if they did this in February 2020 just days before the covid crash? Still fine.

• Feb 2020: 40%
• Mar 2020: 42.66%
• Apr 2020: 48.42%
• May 2020: 38.81%

(at that point the market bounces back and there's no further risk of margin calls)

Of course you can construct some hypothetical scenario where the market dropped so fast that even with their deleveraging it ended poorly. But I think we're getting into increasingly unlikely scenarios here and that should be acknowledged. We're no longer talking about historical events.

And remember all this was with 40% leverage! With the 33% they are talking about, things look even safer.

Disclaimer: I used margin to buy a house so I'm possibly more positively disposed to this approach than the average Boglehead. Also, to repeat: the OP doesn't seem like they are knowledgeable enough to be doing this anytime soon. They're asking pretty basic questions that can be answered with a few minutes of Googling. My general stance is that if someone has to ask something (regardless of what that is) on an internet forum, they probably shouldn't be doing it. People who don't need to ask might be a position to do it.

[gougou]

Will you guys please give me a idea of what percentage of drop causes margin call? Just a number

IBKR portfolio margin shows 9.75% initial margin and 8.86% maintenance margin. So assuming you have a 1.2M position and 300K margin loan, the position needs to drop to $329.16K to trigger a margin call, which is a 72.57% drop from 1.2M.

[muffins14]

Bogleheads is a good place to learn things, I think it’s a step too far to say that someone isn’t “allowed” to do something if they don’t already know how to do it

[CletusCaddy]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

[newyorker]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

[CletusCaddy]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

That’s not how margin works.

In your account you’ll have VOO and a cash balance. Easy to understand. If you withdraw more cash than you have in your cash balance (yes they will let you do this) then you are officially using margin, and your cash balance will go negative. On every monthly statement, the broker will calculate the average negative balance for the month (if any) and then charge you the interest rate on that negative balance. That interest rate charge just gets added to your negative balance, making it more negative.

You can choose to pay down the negative balance (by depositing more cash or selling some VOO) whenever you’d like, in whatever amount you’d like. Or not at all.

[psteinx]

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

Hahaha.

The OP makes $600K year and wants to borrown $300K, with $1.2M in equities backing it. This does not sound very risky.

And, I presume even that $300K balance would come down some over time.

That said, if I were OP, I'd likely try to pay it off quicker, or just go with a more conventional mortgage. Be aware of any possible differential tax treatment...

[JBTX]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

https://www.schwab.com/margin/margin-ra ... quirements

How do you get 3% when this shows around 9%?

[CletusCaddy]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

https://www.schwab.com/margin/margin-ra ... quirements

How do you get 3% when this shows around 9%?

As I stated, you call them up and say you're willing to bring over $1M in assets and what can they do for you on margin rates if you do.

[gougou]

300k off from 1.2M. If I make 50k/month post tax. Is it manageable?

It's possible, but it's very risky. Your odds would be similar at your nearest casino.

Hahaha.

The OP makes $600K year and wants to borrown $300K, with $1.2M in equities backing it. This does not sound very risky.

And, I presume even that $300K balance would come down some over time.

That said, if I were OP, I'd likely try to pay it off quicker, or just go with a more conventional mortgage. Be aware of any possible differential tax treatment...

Exactly. OP is just pre-buying 6 months’ worth of VOO right now paying a tax-deductible margin interest. I think it’s not risky at all even if OP maintains a constant margin loan of 6 months’ worth of aftertax income.

[newyorker]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

That’s not how margin works.

In your account you’ll have VOO and a cash balance. Easy to understand. If you withdraw more cash than you have in your cash balance (yes they will let you do this) then you are officially using margin, and your cash balance will go negative. On every monthly statement, the broker will calculate the average negative balance for the month (if any) and then charge you the interest rate on that negative balance. That interest rate charge just gets added to your negative balance, making it more negative.

You can choose to pay down the negative balance (by depositing more cash or selling some VOO) whenever you’d like, in whatever amount you’d like. Or not at all.

Ok, so I am going to use hypothetical situation. I have never used margin so trying to understand as much as possible.

Say I have $0 in Cash and 1M in VOO in Schwab account

And I borrow 300k. (Negative Cash Balance)

I will pay 3 percent interest ($750/month) until I pay it back? (Or, just fill up the account with 300k which I may do at my own schedule?)

So say that i pay back 100k, then my interest goes down to $500/month and etc

[CletusCaddy]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

That’s not how margin works.

In your account you’ll have VOO and a cash balance. Easy to understand. If you withdraw more cash than you have in your cash balance (yes they will let you do this) then you are officially using margin, and your cash balance will go negative. On every monthly statement, the broker will calculate the average negative balance for the month (if any) and then charge you the interest rate on that negative balance. That interest rate charge just gets added to your negative balance, making it more negative.

You can choose to pay down the negative balance (by depositing more cash or selling some VOO) whenever you’d like, in whatever amount you’d like. Or not at all.

Ok, so I am going to use hypothetical situation. I have never used margin so trying to understand as much as possible.

Say I have $0 in Cash and 1M in VOO in Schwab account

And I borrow 300k. (Negative Cash Balance)

I will pay 3 percent interest ($750/month) until I pay it back? (Or, just fill up the account with 300k which I may do at my own schedule?)

So say that i pay back 100k, then my interest goes down to $500/month and etc

You got it, except that you don’t “pay the interest” unless you choose to, by adding cash to the account or selling shares. There’s no bill sent to you with a due date like with a credit card.

[exodusNH]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

That’s not how margin works.

In your account you’ll have VOO and a cash balance. Easy to understand. If you withdraw more cash than you have in your cash balance (yes they will let you do this) then you are officially using margin, and your cash balance will go negative. On every monthly statement, the broker will calculate the average negative balance for the month (if any) and then charge you the interest rate on that negative balance. That interest rate charge just gets added to your negative balance, making it more negative.

You can choose to pay down the negative balance (by depositing more cash or selling some VOO) whenever you’d like, in whatever amount you’d like. Or not at all.

Ok, so I am going to use hypothetical situation. I have never used margin so trying to understand as much as possible.

Say I have $0 in Cash and 1M in VOO in Schwab account

And I borrow 300k. (Negative Cash Balance)

I will pay 3 percent interest ($750/month) until I pay it back? (Or, just fill up the account with 300k which I may do at my own schedule?)

So say that i pay back 100k, then my interest goes down to $500/month and etc

More or less. Because you will be incurring interest, then interest on interest, your negative cash balance will continue to go more negative; the interest will grow slightly each month.

[newyorker]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

That’s not how margin works.

In your account you’ll have VOO and a cash balance. Easy to understand. If you withdraw more cash than you have in your cash balance (yes they will let you do this) then you are officially using margin, and your cash balance will go negative. On every monthly statement, the broker will calculate the average negative balance for the month (if any) and then charge you the interest rate on that negative balance. That interest rate charge just gets added to your negative balance, making it more negative.

You can choose to pay down the negative balance (by depositing more cash or selling some VOO) whenever you’d like, in whatever amount you’d like. Or not at all.

Ok, so I am going to use hypothetical situation. I have never used margin so trying to understand as much as possible.

Say I have $0 in Cash and 1M in VOO in Schwab account

And I borrow 300k. (Negative Cash Balance)

I will pay 3 percent interest ($750/month) until I pay it back? (Or, just fill up the account with 300k which I may do at my own schedule?)

So say that i pay back 100k, then my interest goes down to $500/month and etc

More or less. Because you will be incurring interest, then interest on interest, your negative cash balance will continue to go more negative; the interest will grow slightly each month.

So i can either just pay off interest each month and keep it 300k borrowed

Or i can just pay off 50k/month plus a little bit of interest and pay off in 6 months

Or i can pay it back like mortgage.

Either way lots of flexibility and quick access to cash without selling my equity

Lastly, assuming my maintenance margin is 30 percent, i wont get margin call until portfolio drops 57 percent in value.

[CletusCaddy]

One thing I’ll caution is that even if you negotiate a great below-market margin rate like I did, it is a variable rate and it will move over time.

My 3% rate started at 1.5% six months ago. It’s not inconceivable that it will keep rising, past 5% which is what a lot of fixed rate mortgages are going for these days.

[newyorker]

You should call up Charles Schwab and ask for a negotiated margin rate if you moved your VOO over.

I'm currently at 3% starting from the first dollar borrowed, much lower than IBKR.

Thank you. I like the fact that charles schwab has margin call unlike ibkr.

One more question. For 300k loaned, is there usually a payment schedule or you can pay back however you want?

That’s not how margin works.

In your account you’ll have VOO and a cash balance. Easy to understand. If you withdraw more cash than you have in your cash balance (yes they will let you do this) then you are officially using margin, and your cash balance will go negative. On every monthly statement, the broker will calculate the average negative balance for the month (if any) and then charge you the interest rate on that negative balance. That interest rate charge just gets added to your negative balance, making it more negative.

You can choose to pay down the negative balance (by depositing more cash or selling some VOO) whenever you’d like, in whatever amount you’d like. Or not at all.

Ok, so I am going to use hypothetical situation. I have never used margin so trying to understand as much as possible.

Say I have $0 in Cash and 1M in VOO in Schwab account

And I borrow 300k. (Negative Cash Balance)

I will pay 3 percent interest ($750/month) until I pay it back? (Or, just fill up the account with 300k which I may do at my own schedule?)

So say that i pay back 100k, then my interest goes down to $500/month and etc

You got it, except that you don’t “pay the interest” unless you choose to, by adding cash to the account or selling shares. There’s no bill sent to you with a due date like with a credit card.

So you are saying 1M in VOO and 300k cash in Account and I borrow 300k in cash then i dont pay interest. Isnt it moot though? You can just use 300k you have as cash anyways.

[newyorker]

One thing I’ll caution is that even if you negotiate a great below-market margin rate like I did, it is a variable rate and it will move over time.

My 3% rate started at 1.5% six months ago. It’s not inconceivable that it will keep rising, past 5% which is what a lot of fixed rate mortgages are going for these days.

True thats the true disadvantage. I guess i will use for a quick source of cash for under 300k which i will pay back within a year.