HELOC vs. Margin Loan: Which Credit Line Should You Tap First?

Quick Answer: If you have both home equity AND an investment portfolio, you have two borrowing options. HELOCs offer stability — your rate might rise but you'll never face a margin call. Margin loans may have lower rates but can force you to sell investments at the worst possible time. For most people, HELOC wins.

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Two Assets, Two Lines of Credit

Here's a situation that doesn't get discussed enough:

You own a home with equity. You also have a brokerage account with investments. Both can serve as collateral for loans. But they work very differently — and choosing wrong can be expensive.

Let's compare.

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How Each Works

HELOC (Home Equity Line of Credit)

• Collateral: Your home
• Typical rate: 7-9% (prime + margin)
• Rate type: Variable (some fixed-rate options)
• Borrowing limit: 80-85% of home equity
• Repayment: Interest-only during draw period, then principal + interest
• Risk: Foreclosure if you default (extreme case)

Margin Loan

• Collateral: Your investment portfolio
• Typical rate: 6-12% (varies by broker and loan size)
• Rate type: Variable
• Borrowing limit: 50% of portfolio value (Reg T standard)
• Repayment: Flexible — pay interest, or don't (balance compounds)
• Risk: Margin call if portfolio drops

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The Rate Comparison

At first glance, margin loans can look attractive:

*Margin rates decrease with larger balances at most brokers

Key insight: Margin loans get cheaper the more you borrow. HELOCs stay relatively flat. For large borrowers with substantial portfolios, margin can win on rate.

But rate isn't everything.

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The Margin Call Trap: Why This Changes Everything

Here's the risk that makes HELOCs the safer choice for most people.

What's a margin call?

If your portfolio drops below a certain threshold (usually 30-35% of the loan value), your broker issues a margin call. You must immediately:

1. Deposit more cash, OR
2. Deposit more securities, OR
3. Sell investments to pay down the loan

When does this hit? At the worst possible time. Markets crash, your portfolio drops 30%, and now you're forced to sell — locking in losses at the bottom.

Example: The 2020 COVID Crash

March 2020. Markets drop 34% in weeks.

Margin borrower: Has $200,000 loan against $500,000 portfolio. Portfolio drops to $330,000. Margin call. Must sell $50,000+ of investments at the bottom to stay compliant.

HELOC borrower: Has $200,000 HELOC against $600,000 home. Home values drop 10% on paper. Nothing happens. No call. No forced action. Continue paying as normal.

The HELOC borrower could ride it out. The margin borrower was forced to sell low.

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The Stability Advantage

Your home value can drop. Your local market can soften. But here's what won't happen with a HELOC:

• No margin call
• No forced sale
• No liquidation at the worst time

As long as you make your payments, your HELOC stays in place. The lender can't demand you pay it off because your neighborhood's values dipped.

This stability is worth something. Often, it's worth more than a slightly lower rate.

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Tax Treatment: Both Have Benefits

HELOC Interest Deduction

HELOC interest may be tax-deductible if the funds are used for home improvement. "Buy, build, or substantially improve" your home = deductible. Use it for debt consolidation or a car = not deductible.

See our HELOC tax deduction guide for details.

Margin Interest Deduction

Interest on margin loans is deductible against investment income (not regular income). If you have dividends, capital gains, or other investment income, margin interest can offset it.

Neither has a clear tax advantage — it depends on how you use the funds and your income sources.

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Scenario Analysis: When Each Makes Sense

Choose HELOC When:

✅ You need funds for 1+ years ✅ You can't stomach forced selling ✅ Your portfolio is volatile (tech stocks, growth funds) ✅ You're using funds for home improvement (tax benefit) ✅ You want predictable payment obligations ✅ Sleep quality matters to you

Choose Margin Loan When:

✅ Short-term need (weeks to months) ✅ You have a large, stable portfolio (bonds, dividend stocks) ✅ You can maintain 50%+ buffer above margin requirements ✅ You're using funds for investment purposes (tax benefit) ✅ You have ability to deposit more if called ✅ You're an experienced investor comfortable with leverage

The Hybrid Approach

Some sophisticated borrowers use both:

• HELOC for stable, long-term borrowing (home renovation, debt consolidation)
• Margin for short-term tactical needs (opportunistic investments, bridge financing)

This keeps margin utilization low (reducing call risk) while using the HELOC for predictable needs.

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What About Securities-Based Lines of Credit (SBLOCs)?

Some brokers offer "pledged asset lines" or SBLOCs — credit lines backed by your portfolio but structured differently than traditional margin.

Key differences from margin:

• Often no margin calls (or higher thresholds)
• May have more restrictions on what you can do with funds
• Usually offered for larger portfolios ($100k+)

These reduce the margin call problem but come with their own terms and limitations. Read the fine print.

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The Verdict: HELOC for Most People

Unless you're a sophisticated investor with a large, stable portfolio and short-term borrowing needs, a HELOC is the safer choice.

Why:

1. No margin calls — The stability matters more than you think
2. Predictable payments — You know what you owe each month
3. Can't be forced to sell — Your timeline, not the market's
4. Simpler tax treatment — Especially for home improvement use

The slightly lower rate on margin loans isn't worth the risk of forced liquidation at the worst time.

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Questions to Ask Yourself

Before borrowing against either asset:

1. How long do I need the funds? (Short-term → margin might work. Long-term → HELOC safer)
2. How volatile is my portfolio? (High volatility → avoid margin)
3. Can I handle a margin call? (If not, don't use margin)
4. What am I using the funds for? (Home improvement → HELOC tax benefit)
5. How would I feel if forced to sell investments at a loss? (If terrible → use HELOC)

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Want Stable Access to Your Equity?

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No forced selling. No surprise calls. Just straightforward home equity access.

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Last updated: February 2026