Margin loan

Explanation

When you open a margin account, your broker can lend you money using your eligible securities as collateral. You can use the loan to buy more securities (which adds leverage) or withdraw it as cash for other uses. There is usually no fixed repayment schedule; interest accrues and is typically charged to the account monthly, which increases the loan if you do not pay it.

Key rules:

• Initial margin: under the Federal Reserve’s Regulation T, you can borrow up to 50% of the purchase price of marginable stocks. Practically, on a fully paid $1,000,000 portfolio of marginable stocks, the most you could typically borrow is about $500,000.
• Maintenance margin: after the purchase, your equity must stay above a minimum share of the account’s value, at least 25% under FINRA rules, and often 30% or more at individual brokers, with higher requirements for concentrated or volatile positions.
• Margin calls: if your equity falls below maintenance, the broker can demand cash or securities, or sell your holdings without asking, possibly at the worst time.

Rates are variable and usually tiered by loan size. They range widely, from close to benchmark rates at some brokers to well over 10% for small balances at others, so shop around.

Taxes: interest on a loan used to buy taxable investments is investment interest. It is deductible only if you itemize, and only up to your net investment income for the year (excess carries forward). Interest on margin borrowed for personal spending is not deductible.

In scenarios, you can add a margin loan, set its rate and maintenance requirement, and the app tracks the loan balance, your LTV, and whether a market drop would trigger a call.

Example

You hold $1,000,000 of diversified stocks and borrow $100,000 for a home renovation at 7%.

• LTV: $100,000 ÷ $1,000,000 = 10%
• Annual interest: $100,000 × 7% = $7,000 (not deductible, since the use is personal)
• If you never pay the interest, the balance after 5 years is $100,000 × 1.07^5 = $140,255

With a 30% maintenance requirement, a margin call would occur only if the portfolio fell below $100,000 ÷ 0.70 = $142,857, an 85.7% drop. At a $140,255 balance, that line rises to $200,364.