Yes on the repayments.newyorker wrote: ↑Fri Aug 05, 2022 12:30 pmSo i can either just pay off interest each month and keep it 300k borrowedexodusNH wrote: ↑Fri Aug 05, 2022 12:26 pmMore 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 wrote: ↑Fri Aug 05, 2022 12:19 pmOk, so I am going to use hypothetical situation. I have never used margin so trying to understand as much as possible.CletusCaddy wrote: ↑Fri Aug 05, 2022 11:35 amThat’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.
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
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.
Not sure on the exact numbers regarding maintenance, but since you're only taking $300k against $1.2M, you have a good buffer.
The interest rate is almost certainly variable, so you'll want to keep an eye on that. The jobs report was really strong this month. If that keeps up, the Fed will almost certainly be aggressive on the next rate increase in September. (There are sites that track the probability of various rate increases.)