Who has the best rate for borrowing against your stocks thru margin / loan management account?

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Topic Author
LFKB
Posts: 728
Joined: Mon Dec 24, 2012 7:06 pm

Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by LFKB »

My investments are held at Merrill Edge. They are offering a 2.55% loan management account (can fluctuate but is tied to LIBOR). I haven't really looked into other options so wanted to see how this rate compares and who offers the lowest rates for this.

I would only be drawing down about 15-20% of my total stock value and would repay the loan within 6 months, so would not be at risk for any margin calls.

Does anyone have experience/knowledge of this?

Thanks
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arcticpineapplecorp.
Posts: 6213
Joined: Tue Mar 06, 2012 9:22 pm

Re: Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by arcticpineapplecorp. »

have you read all the conditions/risks:
Risks of LMA Borrowing

Securities-based financing involves special risks. You should review the LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.

A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
Bank of America, N.A. ("the Bank") can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
You are not entitled to choose which securities in the collateral account are liquidated or sold.
The Bank can change its collateral maintenance requirement at any time without notice to you.
You are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
There may be adverse tax or other consequences to you if securities are sold or otherwise liquidated by the Bank.
The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed $100,000. The Bank may demand full or partial repayment at any time and any commitment may be immediately terminated.
For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily, (due to demand or liquidation by the Bank,) may be subject to a substantial breakage fee as determined by the Bank.
Some restrictions on the use of LMA account proceeds may apply under the terms of the loan documents and applicable laws and regulations.

source: https://www.ml.com/solutions/lma-account.html
Understanding risks associated with your LMA accountSecurities-based financing involves special risks. You should review your LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.Some risks to consider include the following:
•A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
•The Bank can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
•You are not entitled to choose which securities in the collateral account are liquidated or sold.
•The Bank can change its collateral maintenance requirement at any time without notice to you.

source: https://mlaem.fs.ml.com/content/dam/ML/ ... tsheet.pdf
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
vsquid
Posts: 64
Joined: Sat May 18, 2019 2:24 pm

Re: Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by vsquid »

Interactive brokers starts at 1.5% and goes down for large balances. It is tied to their own benchmark rate which is close to LIBOR.
Topic Author
LFKB
Posts: 728
Joined: Mon Dec 24, 2012 7:06 pm

Re: Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by LFKB »

arcticpineapplecorp. wrote: Wed Sep 16, 2020 1:38 pm have you read all the conditions/risks:
Risks of LMA Borrowing

Securities-based financing involves special risks. You should review the LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.

A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
Bank of America, N.A. ("the Bank") can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
You are not entitled to choose which securities in the collateral account are liquidated or sold.
The Bank can change its collateral maintenance requirement at any time without notice to you.
You are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
There may be adverse tax or other consequences to you if securities are sold or otherwise liquidated by the Bank.
The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed $100,000. The Bank may demand full or partial repayment at any time and any commitment may be immediately terminated.
For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily, (due to demand or liquidation by the Bank,) may be subject to a substantial breakage fee as determined by the Bank.
Some restrictions on the use of LMA account proceeds may apply under the terms of the loan documents and applicable laws and regulations.

source: https://www.ml.com/solutions/lma-account.html
Understanding risks associated with your LMA accountSecurities-based financing involves special risks. You should review your LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.Some risks to consider include the following:
•A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
•The Bank can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
•You are not entitled to choose which securities in the collateral account are liquidated or sold.
•The Bank can change its collateral maintenance requirement at any time without notice to you.

source: https://mlaem.fs.ml.com/content/dam/ML/ ... tsheet.pdf
I am only borrowing 15-20% against my portfolio. Unless the S&P goes down 75% in a 6 month span I’ll be fine.
Topic Author
LFKB
Posts: 728
Joined: Mon Dec 24, 2012 7:06 pm

Re: Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by LFKB »

vsquid wrote: Wed Sep 16, 2020 1:53 pm Interactive brokers starts at 1.5% and goes down for large balances. It is tied to their own benchmark rate which is close to LIBOR.
thanks. I just found the tiered pricing based on asset level online. Appreciate it.
SS Rambo
Posts: 171
Joined: Wed Jan 29, 2020 10:55 am

Re: Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by SS Rambo »

I would be very interested in what you choose and your experience with it if you’re able to.
michaeljc70
Posts: 7111
Joined: Thu Oct 15, 2015 3:53 pm

Re: Who has the best rate for borrowing against your stocks thru margin / loan management account?

Post by michaeljc70 »

vsquid wrote: Wed Sep 16, 2020 1:53 pm Interactive brokers starts at 1.5% and goes down for large balances. It is tied to their own benchmark rate which is close to LIBOR.
It's hard to beat IBs rates. Beware of fees and other limitations though. After transferring my account to IB a few weeks ago I was unable to withdraw any cash for 30 days. I had $40k cash just sitting there that I sort of needed. Their website doesn't have this information (according to them, it will be updated "soon"). I escalated the issue and was told they are investigating and will get back to me in 15-20 business days (after the 30 day hold is over) when the result is moot.
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