Borrow Smarter: HELOC vs. Margin Loan Explained

Borrow Smarter: HELOC vs. Margin Loan Explained

When you need liquidity, two common options are a home equity line of credit (HELOC) and a margin loan. Both let you borrow against an asset—your home for a HELOC, and your investment portfolio for a margin loan. But while they may seem similar at a glance, the differences are significant—and in many cases, a HELOC comes out on top. Here’s what you need to know about each option:

1. Lower Interest Rates

HELOCs are typically secured by your home, which is a relatively stable and low-risk asset for lenders. Because of this, HELOCs usually carry lower interest rates than margin loans. Margin rates are tied to the broker’s base rate and fluctuate with market conditions. During periods of high interest rates, margin loan costs can spike quickly—sometimes even into double digits. And while HELOCs that are variable rate are also subject to rate increases, HELOCs typically include rate caps to prevent sudden spikes—something margin loans do not offer.

2. Less Risk of Forced Liquidation

One of the biggest drawbacks of a margin loan is the risk of a margin call. If the value of your investments drops, your broker can demand that you either deposit more funds or sell assets to cover the loss. These margin calls can happen with little warning, sometimes requiring immediate action within 24-48 hours. This forces you to repay immediately or sell off assets to cover the difference – often when markets are down and you’re already facing losses. That’s hardly financial freedom.

With a HELOC, you’re borrowing against your home’s stable value, not a volatile portfolio. No margin calls based on market dips, no forced selling, and no pressure to liquidate when conditions are unfavorable.

3. Flexible Use of Funds

Both HELOCs and margin loans offer flexibility in how you use the funds, but HELOCs often come with fewer restrictions. HELOCs and margin loans differ significantly in how you can use the funds. HELOCs offer broader flexibility for personal use, while margin loans are primarily designed for investment purposes. Important note: Using HELOC funds to invest carries significant risk, as you could lose both your investment and still owe on your home equity loan.

4. Longer Repayment Periods

HELOCs usually come with a multi-year draw period followed by a repayment term that can last 5, 15, or even 25 years. This gives you the flexibility to pay back the loan over time. Margin loans are demand loans and callable at any time; if the market turns against you or interest rates rise, repayment pressure can mount quickly. HELOCs offer a more structured and predictable path.

5. Potential Tax Advantages

Tax treatment varies significantly between these options. HELOC interest may be deductible only when used for qualifying home improvements. Margin loan interest can be deductible when used for investment purposes, subject to investment interest expense limitations. Tax rules are complex and have changed recently – always consult a qualified tax professional before making decisions based on potential deductions.

6. Diversification of Risk

By using a HELOC instead of a margin loan, you’re diversifying the types of assets you’re borrowing against. This spreads out your financial risk. If the stock market drops, your home equity isn’t immediately affected in the same way your portfolio would be. Margin loans concentrate both your borrowing and investment risk in your portfolio, creating potential for amplified losses.

When Margin Loans Might Make Sense

Despite the advantages of HELOCs, margin loans can be appropriate in certain situations:

• Short-term liquidity needs (weeks or months rather than years)
• When you don’t have sufficient home equity
• For tax-loss harvesting or other time-sensitive investment strategies
• When you want to avoid putting your home at risk

A Smarter Way to Access Your Home’s Equity

Traditional HELOCs already offer advantages over margin loans, but Trovy takes it further. While margin loans leave you vulnerable to market volatility and sudden margin calls that force immediate repayment or asset liquidation, Trovy’s HELOC card provides:

• No margin calls based on home value fluctuations
• Credit card convenience without traditional HELOC complexity
• Access to equity you’ve already built, not wealth you’re waiting to realize
• Freedom to invest on your terms, not the market’s timeline

Your home’s equity isn’t just a future windfall – it’s financial power you can access today. Whether you’re upgrading your property, paying for a large expense, or financing an investment, Trovy lets you put your home’s value to work without the volatility risks of margin borrowing.

Conclusion

Margin loans might promise amplified returns, but they come with strings attached – market volatility, margin calls, and forced liquidation when you can least afford it. That’s not financial freedom.

Your home’s equity offers a different path. With solutions like the Trovy HELOC, you can access the wealth you’ve already built without the risks that come with market-tied borrowing. Instead of waiting decades to realize your home’s value or risking it all on volatile investments, you can put your equity to work today—on your terms.

Remember: your home isn’t just where you live, it’s where your financial future lives too.

Interested in learning how a HELOC can work for you? Trovy makes it easy to access your equity with flexible terms and low rates