I recently used an asset-backed line-of-credit to partially fund a house purchase. We did this to delay selling some stock until 2024 for tax reasons. Worked great, but we did pay 7.82% interest which was not tax deductible.
A margin loan and an asset-backed line-of-credit are two separate things. A margin loan can be used for pretty much anything, including investing. Most taxable brokerage accounts are margin accounts. You can have $100k in cash (plus other assets), take out $300k, and suddenly you have a $200k margin loan. The percentage you can borrow is limited. If your stocks precipitously fall, they may give you a "margin call" and force you to sell stocks to pay back the loan. They will sell stocks on your behalf if necessary. Ugh.
An asset-backed line-of-credit is where you pledge the stock in a particular account against a line-of-credit. You can then draw down that line of credit. You can use the line of credit for most non-investment things. Because the stocks are pledged, you are not allowed to withdraw $$ from that account while you have a positive balance on the line-of-credit. In my case we created a new account, moved some stocks over to the account, and pledged that account/stocks to guarantee the line-of-credit. The line-of-credit is linked to our bank account. Whenever we "draw" from the LOC, money is ACH transferred to our bank account.
Because the line-of-credit requires setup/approval and cannot be used for investments, it is considered lower risk and generally charges a lower interest rate. For example, right now the margin rate at eTrade for a $250k-$500k loan is 12.2% (source
https://etrade.com/pricing ). My line-of-credit rate is 7.72%. Asset-backed line of credit rate is *much better* than margin! My eTrade advisor says I could have gotten a better rate with a Morgan Stanley account.
Once my line-of-credit was approved, it sat with $0 balance and $0 interest/fees until we found a house to buy. Then we drew down the line-of-credit. As we sell stocks, we pay some back. When we have to make tax payments we draw down more.
The interest rates can fluctuate daily. I'm not required to make a periodic payment on my line-of-credit, but if I don't interest will compound.
Mortgage interest is tax-deductible, but my understanding is margin loans and my asset-backed line-of-credit are not. I would have preferred a mortgage for this reason alone. But (being retired with no income) I had issues getting a mortgage.
With an asset-backed line-of-credit, your assets need to exceed the credit line. For example, my "minimum equity" is about 10% more than the "max loan" amount. If my stocks dropped below the "minimum equity" amount, bad things would happen. I might have to decrease the "max loan" amount. If I'd already drawn down the max-loan amount, I'd need to sell some stock immediately to pay some back. I made sure I had a _much_better_ safety margin than 10%.
If you are correctly explaining what the manager is saying, I think he's giving you bad advice. The interest rate on the asset-backed line-of-credit is much better than a margin loan. A mortgage would be even better for tax reasons, but wasn't possible in my case. But the line-of-credit worked out very conveniently once we had the pledged account setup. We were able to get cash out and use it to fund the house 8 days after our offer was accepted. We treated the house offer as "cash-only" (which really means "no mortgage contingency").
Personal note: I'm paying off the last of the asset-backed-loan tomorrow! Woohoo! Interest is bad! But I'm keeping the (zero balance) line-of-credit live until my tax liabilities are fully paid April 15th...just in case.
