Do margin loans have fixed rates?

[Stash Man]

I'm intrigued by MMM's article on using a margin loan from IB for house purchase. Can a brokerage change the interest rate on you after you borrow the money? I'm guessing the answer is yes. If so, what do you think the risks are that the rate will eventually exceed the fixed rate that you can get now for a traditional mortgage?

[daverobev]

Yeah it changes, both with central bank rate and whatever IB want to do - there is no agreement that their margin rate will be base rate + x%.

Depending on the delta and the amount you're looking to borrow, if you can get a long term fixed rate it is much much safer to do so.

If you're borrowing more than 10-15% you're risking a margin call down the line and IB is *really* quick to liquidate.

[Metalcat]

Of course the rate can change.

If you could lock in a low rate for a long period of time, most people here would be using margin loans.

You simply cannot compare a margin loan to a mortgage.

[Dicey]

Of course the rate can change.

If you could lock in a low rate for a long period of time, most people here would be using margin loans.

You simply cannot compare a margin loan to a mortgage.

This. As intriguing as they are in certain situations, the downside risks are serious. For Pete, having something "new" to explore and discuss has a different kind of value. Adding another talking point to his mighty arsenal is far more lucrative than the margin loan risk he took. For most, that simply isn't so.

To be clear, margin loans can be extremely useful in certain situations, but they are always dangerous to deploy without complete understanding of their exponential risks.

I'm not being critical of Pete, just pointing out that his marketing brilliance has made him very rich. Happily, his guidance has made a lot of other folks rich as well. Teaching so many people how to manage their financial lives and take better care of our finite planetary resources is a fantastic accomplishment.

[Stash Man]

Thanks for the input. With rates so much lower than the other brokerages, I wouldn't be surprised if IB decides to jack it up way higher than a traditional fixed in the future. Probably not a good idea unless the loan is a very small part of one's net worth.

[daverobev]

Thanks for the input. With rates so much lower than the other brokerages, I wouldn't be surprised if IB decides to jack it up way higher than a traditional fixed in the future. Probably not a good idea unless the loan is a very small part of one's net worth.

Mm, it's their USP though. If they got rid of that there wouldn't be that much reason to use them.

The real question is the differential between their rates and a HELOC I suppose, for most people. Though perhaps they have a lot of really large accounts...