Margin loans

Whether you need extra money for a short-term financing need or buying more securities, a margin loan may help you get the money you need.


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Using a margin loan

A margin loan may be an alternative approach to help meet short-term financial needs that are not related to trading. In fact, using this type of loan rather than selling existing securities or using cash on hand can help to avoid disruption to your long-term investing goals and could help you avoid potential tax consequences of selling securities. However, you should carefully consider your personal situation to help determine if borrowing money makes sense for you. In many cases, you might be better advised to simply pay with available funds, or if that is not possible, to not buy it—whatever it is—at all.

Consider these scenarios.

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Real estate transactions

You need some extra cash to sweeten your bid or to cover escrow costs until your long-term loan is secured.

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Large purchase

While you plan to pay yourself back with your year-end bonus, you need the money now to cover a home renovation, wedding, or other large purchase.

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Short-term liquidity

You need immediate funds for an unplanned medical procedure or other unanticipated expenses.

Understanding different ways of borrowing

It's essential that you fully understand what borrowing on margin entails, its risks, and how it differs from traditional loan sources to determine if it's appropriate for your specific situation. We've mapped out a comparison of a few common ways to borrow money, which may help you decide if a margin loan is right for you.

  Margin loan Traditional home mortgage Home equity line of credit Credit card
Overview A line of credit secured by securities you already own Loan with a fixed term and either a variable or fixed interest rate, secured by residential property Stand-by loan secured by residential property with a predetermined maximum and a variable interest rate Line of credit with a predetermined maximum which can be drawn upon at any time
Fees No closing costs, annual fees, setup fees, or non-use fees May have closing costs May have an annual fee and/or closing costs May have an annual fee and/or other transaction fees
Risks1
  • Margin calls and/or liquidation of securities
  • Amplified losses if the securities in your account decline in value
  • Losses greater than the original investment are possible
  • Interest rates may rise, increasing the cost of your loan
  • Interest rates may rise, increasing the cost of refinancing your loan
  • Foreclosure and/or eviction based on failure to pay
  • Interest rates may rise, increasing the cost of your loan
  • Foreclosure and/or eviction based on failure to pay
  • Late payments and/or rising interest rates may increase the cost of your loan
  • Failure to pay may result in closure of account, restricted access to credit, and asset seizures
Rates2 Variable with interest rates, and dependent on amount borrowed, plus other factors Fixed or variable dependent on income, collateral, credit qualifications, and type of loan selected Fixed or variable with interest rates, and dependent on income, collateral, credit qualifications, and type of loan selected Variable with interest rates, and dependent on income and credit qualifications
Secured by   Securities in margin account The collateralized asset (e.g., house, condo) The collateralized asset (e.g., house, condo) Unsecured
Tax treatment of interest payments3   May be tax deductible May be tax deductible May be tax deductible Not tax deductible
Accessibility Access funds at any time without having to sell securities Must apply each time you need to borrow additional funds Credit does not expire but can be reduced or closed by the lender Credit does not expire but can be reduced or closed by the lender
Payback terms Deposit cash or sell securities to pay down your loan Set monthly payment (scheduled) for term of loan Minimum monthly payment required Minimum monthly payment required
Amount of credit available Varies based on the value and type of securities in your portfolio; subject to regulatory and broker imposed limits Varies based on the value of the collateral; may also be subject to regulatory limits Lender defines minimum/maximum amount Lender defines available balance

Source: Fidelity Investments. Note that the specifics of a margin loan are based on margin requirements for the investments you own.

Insights and education

Using your securities to borrow money
Find out more about some of the reasons you might consider using margin as a loan source, as well as risks to be aware of.

This is only a brief introduction, and it should not be considered sufficient basis for a decision regarding the use of margin borrowing. To help make a fully informed decision regarding the use of margin, read the more detailed guides available from regulators, including the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

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