Transfer my RSU stocks to Interactive Brokers to get a low interest margin loan
Guys, I want to buy an investment property. To get it I need approx. 60k in downpayment and closing costs. Recently I foubd out that IB margin loans has around 2% interest rate. I started to think to transfer my 150k RSU to IB and get 60k (40%) margin loan instead of selling the stocks. I understand the risk and that IB csn do a margin call id stocks go down significantly. But I guess 40% is safe. Fidelity offers about 7% interest, so the difference is significant. Your thoughts? Any experience with IM maegin loans?
You'll have to declare it on your mortgage application. Generally you're not supposed to borrow a down payment but you might be able to get around it if you borrow 1-3 months before purchasing. It's also just risky. Margin call can happen if stocks drop in value. Interest rate can change quickly.
I am buying a fixer with hard money loan that I will refinance after 9 month. Hard money lender knows I will sell stocks, but since they are requiring cash reserves I already have (10k) it is more beneficial for me to get a margin loan. I have AMZN stocks and calculated that to have a margin call they shold fall to 1200 per share... whicb is unlikely
If you're in a hard money loan, you're already in the wild west of less regulated borrowing. That's a pretty different situation than your average mortgage or even small time RE investor mortgage.
LMA . This is common, if you can stomach the risk it’s not bad idea
40% is not safe. You will get called if the stock drops by half. Brokerages have a tendency to raise margin requirements during stock crashes too.
Do you think amzn can fall to 1500?
When that happens, it won't be amazon alone. The whole market will fall 50% Now, I imagine you can make up 60k pretty quick. So, you are betting no 2008 type crash before you cover that.
You need to get a portfolio margin. reg-t would be too much of a close call for margin. Portfolio margin loan rate is 1.6%. It is low because the risk is low. The collateral is in their hands and they can use it to pay their debt. Now, let’s talk about taxes: The interest you pay is deductible from your net investment gain, and can carry forward. The portfolio margin would be calculated based in your position, and I am not aure how much you can truly borrow since you are not diversified. As a side note, buy cheap puts out of money to cover yourself. Go far enough out of money to make it very cheap. Those can mprove your diversity and increase your margin
Thanks! It looks I have to educate myself about puts
@umez33, for example, in your case, 160k is around 50 shares. This is 5 contracts. I use the august 20, 2021 option chain. Leave you 9 months (like your hard money lending). A put to ensure a $2000 floor would cost you $40/shares. But wait, if you think this is expensive, you sell a call at $4900. That call sells for $40. so your cost is commision only (<10$). Only thing, if amzn goes over 4900 in 9 month, you have to sell them. For tighter protection, you could insure 2500 minum price for call at 4050.
Dumb question, but these are vested stocks right? RSUs are restricted and usually can't be moved to other brokers
You can use a brokerage margin loan for anything???
OP 40% margin loan with only AMZN in your account is risky. Please read up IBKR policies. You need 50% overnight maintenance margin for REG-T (regular margin type) so you have a real chance of liquidation if the market crashes and then crashes further after hours. IBKR margin rates are cheap because they don't act like traditional brokers. They will not give you a courtesy call to ask you to add funds. They will auto liquidate you and you have no choice in when the liquidation happens. Also if you pull out 60k on your 150k worth of stock, your Net Liquidity in your account becomes 90k. That means that a 33% drop in AMZN will mean IBKR will start selling shares! Which is entirely feasible. Amzn does not have to drop to 1200 to get you margin called. Based on your current plan it only needs to drop to ~2000!
Yeah, thanks! I read about their policy and decided not to switch. I will probavly stay with fidelity and will buy put options for security. It will cost extra 1600+put options price for my project over 9 month.
Sorry to rain on your parade but if you're buying put options on Amazon stock check the company trading policies. Most companies don't allow employees to short company stock and trade derivatives
As long as you understand the risk of margin call, it's up to you to decide if it's worth the risk. Might consider rebalance to a safer portfolio first. Also note that the margin rate might change anytime (Precovid rate was 3%+).
Yes, i just dont understand why their rates are so low
It's secured loan (very low risk for them) so they can offer similar rates to mortgage/car loans. Other brokers are just ripping you off with ridiculous rates.