SBLOC: extra cash by borrowing against assets

[2daMoon]

BTW, was finally able to speak to the bank. It was a confusing conversation. Their rate is WSJ prime + some amount. Came to 5.25% currently. The confusing part was when she said the "loan" would only be for 36 months max ... and that derailed me. I was thinking of it being an open line of credit. So I don't think what they are offering is an SBLOC at all.

As for IBKR, I'll need to study further what you have said about it being tiered and what that means. All of them I have looked at so far (Margin Loans only) are variable rates pinned to some benchmark. IBKR is as well. Only their benchmark isn't WSJ.

I'd be interested to know how the TD Ameritrade move goes. Are they able to take possession of existing shares from your current broker?

 

[2daMoon]

Looking over TD's page I see this:

• Borrowing with securities as collateral involves certain risks and is not suitable for everyone
• All collateral pledged for your loan or line of credit must be held in a separate cash or non-margin account.* Within this pledged account, your assets may not be withdrawn without lender approval. Additionally, with this account you cannot participate in options trading (for example, spreads and covered call writing), have margin capability, or have any payment features, such as check-writing.
• Your loan will require you to make minimum monthly payments by a specified due date, until the loan is satisfied
• Your credit score will be pulled and must meet a minimum requirement for approval. Please be aware that the credit inquiry may impact your credit score.
• If the value of your pledged securities declines, you may be required to deposit additional funds or securities
• The loan can be called at any time, without notice, and some or all of your securities can be sold to meet the call, which may result in tax consequences for you

Reading this leaves me curious if those monthly payments can be interest only, or, does this loan expect interest and principal payments? Though in the second bullet-item it clearly states there are "line of credit" accounts.

Then, there is that last bullet-item, which looks like what we were discussing above, a caveat allowing them to sell the shares at any time, without notice.

 

[EL0NTRK]

I was able to open a TD account and put in a request to transfer some TSLA shares from Vanguard to TD. It says taking 3-5 business days.
Once the new TD is funded, I will then able to open a LOC using that account balance.
You will pay interest only monthly based on their variable APR.
The small print about they able to change rate, recall and sell stock anytime is standard to cover their behind but I haven't been able to see anyone saying it happens without notice from these big brokers yet. It's common in margin account so I want to avoid that.
Will let you know how it goes when the fund is in.

 

[2daMoon]

FYI,

M1 Finance offers 2% LOC with their $125/year M1 Plus account.

Upgrade to M1 Plus | M1 Finance

Edit:
After looking over the site it doesn't look like a normal broker. It appears to be designed for people who want to randomly throw money at the market using the easiest interface imaginable to lose their money. All of the trades execute at one time each day. So, no buying TSLA on sale in a dip. This thing has "Millennial" written all over it.

It might be useful as a tool to have access to their low interest "Borrow" feature with the low LOC rate, but it looks like they may only do fractional trading as their "pies" used for investing make no mention of ever purchasing a share. It seems all about "balancing" the money in the "pie" that is your automated trading account.

There seem to be no charts or other tools as I'm accustomed to, and, I don't see any mention about looking at whether a share is a short term or long term holdings, nor are capital gains referenced in any way.

I'm guessing they make their money behind the scenes with all their helpful "balancing" and other automated aspects that are probably just making unnecessary trades that take a cut for each transaction (speculation on my part). The more I read or watched, the less interested I was.

 

[EL0NTRK]

Here is another lender that offer SBLOC
Rates

 

[ammulder]

For what it's worth, I looked at ETrade and TD rate pages side by side... ETrade gives rates based on the value of the portfolio, whereas TD gives rates based on the credit limit (didn't someone give an example above of 55% of the portfolio for TSLA?). TD rates are still a bit better, but not by as much as it would first appear.

 

[2daMoon]

Here is another lender that offer SBLOC
Rates

Looking over the site it left the impression that their customers would be institutions rather than individuals.

 

[2daMoon]

Using a $300K account for an example here are the rates I've found:

IBKR ............... 1.247% (using their calculator) This is in the "Pro" account at $125/year
........................ 2.580% in the "Lite" account

TD Ameritrade 3.12% (30 Day Libor (0.12%) + 3.00%)

E*Trade ......... 3.843%

I believe that each of them have terms that include the possibility of automatic sale of Collateral without warning in a Margin Call scenario.

 

[ammulder]

Using a $300K account for an example here are the rates I've found:

IBKR ............... 1.247% (using their calculator) This is in the "Pro" account at $125/year
........................ 2.580% in the "Lite" account

TD Ameritrade 3.12% (30 Day Libor (0.12%) + 3.00%)

E*Trade ......... 3.843%

I believe that each of them have terms that include the possibility of automatic sale of Collateral without warning in a Margin Call scenario.

I believe this list demonstrates the issue I was trying to point out above... E*Trade gives that 3.843% rate for a $300K portfolio, whereas that's the TD rate for a $300K credit line... which if you can borrow 55% of your TSLA means it's the rate for a > $500K portfolio. The TD rate for a $300K account at 55% would be LIBOR+4%.

I'm not sure if that 55% is universal across lenders, however.

 

[2daMoon]

I believe this list demonstrates the issue I was trying to point out above... E*Trade gives that 3.843% rate for a $300K portfolio, whereas that's the TD rate for a $300K credit line... which if you can borrow 55% of your TSLA means it's the rate for a > $500K portfolio. The TD rate for a $300K account at 55% would be LIBOR+4%.

I'm not sure if that 55% is universal across lenders, however.

Here's what I read on the sites showing the interest rate tables/calculator:

IBKR

Isn't clear about whether the "Balance" amount for the calculator represents the collateral or the loaned amount.
However, changing the "Balance" amount to represent either the total collateral or the loan amount doesn't seem to change the interest rate by much.​

TD Ameritrade

"Credit lines are available based on the value of your eligible and pledged securities."
​

E*Trade

"Value of portfolio secured to loan"​

 

[2daMoon]

After waiting on hold for an hour with Fidelity to ask about adjusting the interest rate I hung up and used their site's Support mail system to ask the question. Maybe after another 24-48 hours I should have a response.

While waiting on hold, I clicked a Barron's article from a year ago in another TMC thread that ranked IBKR in a tie for first place with Fidelity against other brokers for two years in a row. (swapping 1st place each year between them) To bolster this, listening to Dave Lee interviewing Emmet Peppers, Emmet commented about how he worked for IBKR, until his gains justified retirement, and he held them in high regard.

There doesn't seem to be any disadvantage in having an account with both, so I plan to set that up while I wait to hear from Fidelity.

Getting a Stock-Backed loan (Margin or LOC, whichever offers the best rate) is one of the last pieces for me to have figured out prior to making a retirement announcement at work.

 

[EL0NTRK]

The trick may be to get other brokers to match or beat IKBR rate. That would be a good deal.

 

[Xepa777]

I believe this list demonstrates the issue I was trying to point out above... E*Trade gives that 3.843% rate for a $300K portfolio, whereas that's the TD rate for a $300K credit line... which if you can borrow 55% of your TSLA means it's the rate for a > $500K portfolio. The TD rate for a $300K account at 55% would be LIBOR+4%.

I'm not sure if that 55% is universal across lenders, however.

Can I pay taxes with these loans from IBKR?

 

[ammulder]

Can I pay taxes with these loans from IBKR?

I don't know about IBKR in particular, but in general with a SBLOC you can do whatever you want except buy securities or pay off margin or the like. E*Trade has a FAQ on theirs that covers usage; I would hope IBKR does as well.

 

[EL0NTRK]

I got the guy from Wells Fargo and EZTrade to reach out to me after I opened an account.
WF says they use WSJ prime rate - 1% for portfolio value of 5M or more. I told them they need to match or beat other rates from others that use 30 day LIBOR and they say they can ask upper management to match. They reason that 30-day LIBOR will go away in 2023 which isn't a valid reason for me now. they are offering about 2.2% APR now. I told them I can get TD rate at 1.62% currently.

Trying to get the EZ Trade guy to match/beat the TD rates at 1.62% APR.

I also looking for a HELOC which will be used as my back up for SBLOC. Seems like big banks like WF/Chase/etc don't offer them anymore during this covid. TD still has it but at higher rate.

 

[EL0NTRK]

Etrade offers 1.62% APR for 5M assets but if it's 100% TSLA, you can borrow up to 45%.
They partner with Morgan Stanley Barney Smith which can price match and do LOC up to 65% total value of assets.
Anyone with any experience with them?

 

[ammulder]

So let me ask this on the SBLOCs... let's say you can borrow 50% and you have an account that's 1M TSLA.

If you borrow 500K, when do you get the equivalent of a margin call? Is it when your TSLA holdings value dip below the loan value (so your portfolio would have to lose half its value and fall below the $500K you borrowed)? Or is it when your outstanding loan falls below that 50% proportion of your holdings (so if your portfolio lost even $1 you'd have to deposit more)? Or somewhere in between?

 

[EL0NTRK]

Depends on each bank but your portfolio will have to go down to 750K before they issue maintenance call, assume a 25% call rate. At 750K, they can still have enough to cover your loan when they sell but they want you to put more or pay off debt to reduce your loan ratio.

 

[juanmedina]

This might be a silly question. What is so attractive about SBLOC vs withdrawing money from your excess margin? I am new to all this margin stuff. IIRC my margin rate at E-Trade 1.94% and if I were to do SBLOC I could only get 3.4% rate unless I call them and try to get a better rate. Thanks

 

[MP3Mike]

This might be a silly question. What is so attractive about SBLOC vs withdrawing money from your excess margin? I am new to all this margin stuff. IIRC my margin rate at E-Trade 1.94% and if I were to do SBLOC I could only get 3.4% rate unless I call them and try to get a better rate. Thanks

You must have negotiated that rate, as their published margin rates, which are based on balance, not collateral, are much higher: 5.45%-8.95%. While the SBLOC rates are: 2.191%-5.495%.

Say for example you have $1,000,000 of stocks and you want to borrow $45k for living expenses. The margin rate would be 8.45% while the SBLOC rate would be 2.953%. (Both of those are the published "rack rates.")