All homes eventually will need some sort of repair or upgrade. If you’re considering home improvement projects, you’ve probably realized that they can be expensive. Most homeowners need to consider some type of home improvement financing, at least for larger projects. An often-overlooked financing option is margin loans. By borrowing from your investment portfolio, you take advantage of assets you already have and pay your home improvement costs.

Qualifying for Margin Loans

When you take out a margin loan, you are using the value of your stocks and other investments as collateral. Here are some investments that qualify to back margin loans, and the maximum percentage of each value that you are allowed to borrow:

• Convertible Bonds: 50 percent
• Corporate/non-convertible bonds: 70 percent
• Exchange traded funds: 70 percent
• FHLM, GNMA: 90 percent
• FNMAs: 90 percent
• Municipal bonds: 80 percent
• Mutual funds: 50 percent
• U.S. Government agency bonds: 80 percent
• U.S. listed common stock: 50 percent
• U.S. Treasury bonds/strips: 92 percent
• U.S. Treasury notes/bills: 95 percent
• Unit investment trusts: 50 percent
• VRDOs: 50 percent
• Warrants: 50 percent.

Unfortunately, some investments don’t qualify for margin loan collateral. These include:

• Annuities
• CATS and TIGRS
• Certificates of Deposit (CDs)
• Money market funds
• Non–U.S. mutual funds
• Retirement accounts
• Some managed accounts
• TRAKRS
• UGMA/UTMA accounts.

Benefits of Margin Loans

If you decide to take a margin loan to cover your home improvement costs, you’ll enjoy many benefits. Some of these are the following:

• As long as you maintain a required equity level in your investment portfolio, you’ll have no set repayment schedule.
• By borrowing from your portfolio rather than selling it, you keep your investments and hopefully profit in the long run.
• Interest charges are added to your balance each month, but are not due at any specific time.
• Interest may be tax deductible, and margin interest may be exempt from the Alternative Minimum Tax.
• You can repay your loan at your convenience, either by depositing cash or selling securities.
• You maintain control of your portfolio while your loan is out.
• You’ll enjoy quick approval, with no credit check.

Risks of Margin Loans

While there are many advantages of borrowing against your portfolio, this home improvement financing option has some risks as well. Some of these include the following:

• If the market goes down, you may be forced to sell your stock.
• If the value of your portfolio goes down, you might have to deposit cash or other securities to your account.
• You can lose more funds than you’ve deposited in your margin account.

To minimize your risks, choose your most stable securities to borrow against. In addition, borrow less than the maximum allowable amount: Experts recommend borrowing no more than 50 percent of your portfolio’s total value. Lastly, keep your portfolio as diversified as possible and monitor it regularly, especially during changing market conditions.