| Home equity line of credit | Margin loan | Bank-issued securities-based line of credit | |
|---|---|---|---|
| Assets used as collateral | Real estate, including your primary residence and second home | Eligible securities in most nonretirement accounts | Eligible securities, as determined by the bank, held in a separate pledged brokerage account |
| Minimum collateral requirement | Established by the lender and typically based on the requested line amount and the associated home value | Typically, $2,000; some brokers may require more | Varies; many lenders require a $100,000 or more minimum loan value of collateral |
| Borrowing limits | A percentage of the appraised value of the home minus the mortgage value determined by the lender | Typically, 50% of the assets' value | Based on the loan value of eligible pledged securities, which is typically up to 70% of their current market value; bank may require a large initial advance |
| Maintenance requirements | N/A | Typically, 30% of the assets' market value (below which you may face a maintenance call) | Varies; for example, some banks require the collateral to have a loan value equal to or exceeding the greater of $100,000 or the amount of the outstanding loans (below which you may face a demand for repayment) |
| Term | Typically, a 10‐year draw period followed by a 20‐year repayment period | Revolving line of credit, meaning no set draw or repayment periods | Typically, a revolving line of credit |
| Approved uses | Acceptable for most purposes, but check with your financial consultant | Any purpose | Most lawful purposes other than securities purchases or margin repayment |
| Ideal uses |
✔️ Debt consolidation ✔️ Home improvements ✔️ Short- or long-term liquidity needs
|
✔️ Stock purchases ✔️ Short-term liquidity needs ❌ Long-term liquidity needs
|
✔️ Bridge financing ✔️ Short- or long-term liquidity needs ❌ Small initial borrowing need |