This article was prepared by the Patton Wealth Financial Planning Team with the support of ChatGPT

When Americans need access to cash, they often consider borrowing against the assets they already own. Two popular options are margin loans and home equity loans. Both let you unlock liquidity without selling your investments or property, but they come with very different structures, risks, and benefits.

For U.S. consumers, deciding between the two depends on your financial goals, tolerance for risk, and the type of asset you’re comfortable pledging as collateral. Let’s break them down in detail.

What is a Margin Loan?

A margin loan is a line of credit offered by a brokerage firm that lets you borrow money by using your investments—such as stocks, ETFs, or bonds—as collateral. Many U.S. brokers, like Charles Schwab, Fidelity, or Interactive Brokers, offer margin accounts.

Key Features:

1. Collateral: Your securities portfolio.
2. Loan-to-Value (LTV): Generally up to 50% of eligible securities under Regulation T (set by the Federal Reserve). Some brokers allow more for maintenance margin if portfolio value rises.
3. Repayment: No fixed monthly schedule—just interest payments and keeping collateral above minimum requirements.
4. Purpose: Often used to buy more securities, but in some cases, cash can be withdrawn for other needs.
5. Rates: Vary by broker and loan size. In 2025, margin rates range roughly from 5% to 13%, depending on balances and brokerage.

Margin loans are designed primarily for investors who want leverage—to magnify their potential gains (and losses).

What is a Home Equity Loan?

A home equity loan (HEL) is a fixed-term loan secured by your home. U.S. homeowners can typically borrow up to 80–85% of their home’s appraised value, minus what they still owe on their primary mortgage.

Key Features:

1. Collateral: Your home.
2. Loan Amount: Based on your home’s value and equity.
3. Repayment: Fixed monthly payments over 5 to 30 years.
4. Rates: Typically lower than unsecured loans and margin loans. As of 2025, home equity loan rates range from 6% to 9% depending on credit score and lender.
5. Purpose: Flexible—can be used for renovations, education, medical bills, debt consolidation, or even investments.

Because the loan is tied to real estate, the approval process is longer and involves appraisals, underwriting, and closing costs—much like a mini mortgage.

Comparing Margin Loans and Home Equity Loans

Here’s a side-by-side comparison across important factors:

1. Collateral

• Margin Loan: Your investments (stocks, ETFs, bonds). Values fluctuate daily, which affects borrowing power.
• Home Equity Loan: Your house. Real estate values change more slowly than securities, providing more stable collateral.

Stability favors home equity loans, but convenience favors margin loans.

2. Risk

• Margin Loan: High risk. If your portfolio value drops, you could face a margin call — where your broker demands you deposit cash/securities immediately or they liquidate your holdings at market prices. This can lock in losses.
• Home Equity Loan: The risk lies in foreclosure. If you miss payments, the lender could repossess your home. However, you won’t face sudden “calls” like with a margin loan.

Margin loans carry market risk; home equity loans carry default/foreclosure risk.

3. Interest Rates

• Margin Loan: Variable rates, often higher and directly tied to Fed rate hikes. A few brokers offer low rates for large balances.
• Home Equity Loan: Fixed rates, usually lower than margin rates. Payments are predictable over the life of the loan.

U.S. borrowers generally get cheaper borrowing with home equity loans.

4. Flexibility

• Margin Loan: Extremely flexible—borrow or repay anytime, with no set term (as long as you maintain required equity).
• Home Equity Loan: Fixed schedule and repayment plan. Less flexibility, but more discipline.

For flexibility, margin loans win.

5. Accessibility

• Margin Loan: Quick. If you already have a brokerage account, funds are available almost instantly. No appraisals, no closing costs.
• Home Equity Loan: Slower. Involves credit checks, home appraisal, title search, and underwriting. Funding can take weeks.

For speed, margin loans are more convenient.

6. Use of Funds

• Margin Loan: Best for investments. Some brokers allow withdrawals for other uses, but it’s riskier to use margin for non-investment expenses.
• Home Equity Loan: Very flexible—fund home renovations, college tuition, medical bills, debt consolidation, or even investments.

Home equity loans are more versatile for U.S. households.

7. Tax Treatment

• Margin Loan: Interest may be deductible if loan proceeds are used to purchase taxable investments (subject to IRS investment interest expense rules).
• Home Equity Loan: Under current IRS rules (post-2017 TCJA), interest is deductible only if used for home improvements on the property securing the loan.

Tax benefits depend heavily on how the funds are used.

Pros and Cons

Margin Loan

Pros:

1. Fast and easy to access through your broker.
2. No fixed repayment schedule.
3. Useful for active investors looking to leverage.

Cons:

1. Risk of margin calls and forced liquidations.
2. Higher, variable interest rates.
3. Can magnify both gains and losses.

Home Equity Loan

Pros:

1. Lower, fixed interest rates.
2. Predictable monthly payments.
3. Can be used for almost any purpose.
4. Larger loan amounts available than most margin loans.

Cons:

1. Slower approval process with closing costs.
2. Less flexibility once terms are set.
3. Risk of losing your home if you default.

Which Loan is Better for U.S. Borrowers?

It depends on your situation:

1. Margin Loan may suit you if:

• You’re an experienced investor.
• You want to borrow quickly to invest more.
• You can tolerate market volatility and margin calls.

2. Home Equity Loan may suit you if:

• You need stable, predictable financing.
• You’re funding personal goals like renovations, education, or debt consolidation.
• You prefer lower rates and structured repayment.

Example Scenarios

1. Investor Example (Margin Loan): Sarah, a U.S. investor, has $200,000 in her brokerage account. She takes a $50,000 margin loan to buy more stocks. If the market rises, she earns on both her original investment and the borrowed funds. But if stocks fall, she risks a margin call.
2. Homeowner Example (Home Equity Loan): Mike owns a $400,000 home with a $200,000 mortgage. He takes a $100,000 home equity loan (based on available equity) at a fixed 7% rate to remodel his kitchen and pay for his daughter’s college tuition. He makes fixed payments over 15 years without worrying about market volatility.

Final Thoughts

For U.S. borrowers, both margin loans and home equity loans offer ways to access cash without selling assets. The choice boils down to your risk tolerance and intended use of funds.

1. A margin loan offers speed and flexibility but comes with the constant threat of margin calls and higher interest costs. It’s best for active investors seeking leverage.
2. A home equity loan provides larger, cheaper, and more predictable financing, making it a safer option for family and household needs.

Before committing, evaluate your financial stability, talk to your lender or brokerage, and consider consulting a financial advisor. In the U.S., borrowing smartly can help you achieve your goals—but borrowing recklessly can put your home or portfolio at risk.

Note: Home equity loans and margin loans may differ by individual situation, the points discussed in above blog are general in nature.

If you would like to know which of them will be better in your case, feel free to drop an email to Financial Mosaic Team at ClientConcierge4@PattonFunds.com for your personalized financial plan.