3 Ways to Borrow Against Your Assets

Debt often gets a bad rap. But when managed responsibly, borrowing money can help you achieve your financial goals. In fact, the more assets you have, the more lending solutions you may have at your disposal.

Individuals who have built up their net worth—whether in their homes or investment portfolios—could have broader borrowing options by using their assets as collateral. But doing so exposes those assets to increased risk, so you've got to have the tolerance, financial capacity, and investment knowledge to manage such debt effectively.

Let's take a look at three asset-backed lending solutions—and under what circumstances these types of loans might be most appropriate.

What it is: A home equity line of credit (HELOC) is a revolving line of credit, typically with a variable interest rate, collateralized by the equity in your home.

Generally, a HELOC has a 30-year loan term consisting of a draw period and a repayment period. The first 10 years are the draw period, where you can borrow as much as you need—whenever you need it—up to the limit established by the bank or credit union. 

Typically, during this time, you must make scheduled interest payments but have the option to pay toward the principal. Once the line of credit enters its repayment period, however, you'll owe principal and interest on the loan amount for the remaining 20 years.

When to use it: Although you can use a HELOC for many purposes, it's particularly well-suited for:

• Home improvements: HELOCs are an attractive financing option if you're thinking about upgrading or you need to make necessary repairs to your property. When used for this reason, individuals and married couples filing jointly may be able to deduct up to $750,000 of the loan interest on their federal income tax if they itemize deductions. Be aware, however, that the deductibility limit may change in 2026.
• Major purchases or expenses: A HELOC can be a great way to fund a major purchase or cover a large expense. Even if you don't have an immediate cash need, you can establish to back up your emergency fund.
• Debt consolidation: HELOCs may charge lower interest rates than credit cards and personal loans, which can be helpful if you want to consolidate high-interest loans and reduce borrowing costs. However, because a HELOC is secured by your property, you should have a solid payoff strategy, since you are collateralizing your home.

P.S. Lenders need time to process a HELOC application because it requires a home appraisal and an underwriting review of your credit history and income, which can take weeks. Because of the time involved, it's best to open a HELOC well before you need the funds.

What it is: Just as a bank can allow you to borrow against the equity in your home, your brokerage firm can lend you money against the value of eligible stocks, bonds, exchange-traded funds, and mutual funds in your portfolio. Margin loans typically require a minimum of $2,000 in cash or marginable securities and generally are limited to 50% of the investments' value. Interest rates vary depending on the amount of money being borrowed but tend to be lower than unsecured lending options such as credit cards.

When to use it: Funds borrowed on margin are usually used for:

• Additional investments: Active traders may establish a margin account as a way to take advantage of a trading opportunity when they don't have adequate cash on hand. If you use the funds to purchase investments that generate taxable income—including interest, nonqualified dividends, and short-term capital gains—you may be able to deduct the interest paid if you itemize your deductions. However, if the value of your margin account falls below the maintenance requirement—the minimum dollar amount that you must maintain in the margin account once you've tapped the funds—your brokerage will issue a maintenance call, which requires you either to deposit more money or marginable securities or to sell some of the assets held in your account.
• Short-term liquidity needs: As with any line of credit, you can draw from and replenish a margin account for any reason, not just purchasing securities. A margin loan is a ready source of credit that may be used as a short-term loan for any need—and unlike a HELOC, there's no lengthy application process. But I can't stress enough the importance of moderating your borrowing. If you borrow too much and your portfolio's value declines before you repay the money, you could face a hefty maintenance call—or a large tax bill if appreciated securities are sold to meet the maintenance requirement.

P.S. It's important that the assets in your account are diversified. If you're overly concentrated in a particular investment, you could quickly find yourself below the required maintenance threshold if that investment declines considerably.

What it is: Similar to margin, a securities-based line of credit (SBLOC) offered through a bank allows you to borrow against the value of your portfolio, usually at variable interest rates. Assets are pledged as collateral and held in a separate brokerage account at a broker-dealer. Unlike margin, these nonpurpose credit lines may not be used to purchase securities or pay down margin loans, nor can the funds be deposited into any brokerage account. Such lines of credit may require you to pledge a minimum dollar amount ($100,000, for example) to borrow against.

When to use it: There are many ways to use an SBLOC, including:

• Liquidity or bridging: When you need quick access to cash, an SBLOC can help with income smoothing throughout the year for individuals with uneven cashflow. It can also be used to temporarily bridge two financial transactions. For example, business owners can use it to purchase inventory or needed business equipment, or an individual can use the loan amount to buy real estate in a hot market before they sell their current residence.
• Tax-efficiency and investment continuity: Borrowing against your investments, rather than selling them, can help avoid capital gains taxes and keep your investment strategy intact. Another common use of an SBLOC is to borrow against assets to pay a large tax bill.

P.S. An SBLOC from a bank is subject to a high degree of risk, which you should be sure you understand before applying. Should the market value of the pledged collateral decrease, the bank may demand immediate repayment of outstanding obligations or require you to deposit additional cash or securities to the pledged brokerage account to avoid the sale of pledged assets.

Pledging diversified assets and borrowing far less than the pledged amount can help reduce this risk. Be that as it may, you should keep an eye on the value of your pledged assets—and have a backup source of funds in the event of a demand.

Margin and bank-offered SBLOCs, in particular, are best suited for those with the tolerance and financial capacity to take on a loan collateralized by investments that can be volatile. 

What's more, it's crucial to develop a repayment strategy because unlike a traditional mortgage, asset-backed loans generally have a more flexible repayment schedule. And whatever you do, have a repayment plan, and try to pay more than just the interest due each month.