How to Handle Interest Payments on an SBLOC

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SBLOCs are a great tool for building wealth. It is the most popular way to implement the Buy, Borrow, Die tax planning strategy.
SBLOCs allow you to borrow against your portfolio of stocks and bonds. While an SBLOC is technically a loan, it works very differently than other forms of financing. Watch this video to see how interest and principal payments are handled for SBLOCs.
In this video, I cover how interest payments on SBLOCs work. I walk through a few different strategies for how you can make the interest payments.
Buy, Borrow, Die Tax Strategy ➡️ • Never Pay Taxes Again ...
Intro to SBLOCs ➡️ • Intro to SBLOCs
⚠️ Exercise caution before using this strategy. Do your own research and make sure you fully understand the risks you are undertaking!
💡 I do not work with clients or offer any consulting services. If you want to learn more about the best tax and investment strategies, subscribe to my channel and check out these courses ▶️ sharonwinsmith...
The information provided in this video is owned by Winsmith Tax LLC and is solely for informational and educational purposes. It is not intended as investment, legal, or financial advice. Always consult with a professional familiar with your unique situation, or conduct your own research before making any decisions. We might receive commissions for recommending certain products or services.

Опубликовано:

4 окт 2024

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Комментарии : 88

@epbrown01 10 месяцев назад

Thanks for this. It can be annoying how often people let emotion interfere with their investing and this is one of those areas. The fact is if your money can make better returns invested compared to your interest rate there’s no reason to ever pay down the principal on your SBLOC - as your portfolio grows it will dwindle to a smaller and smaller part of the landscape.

@sharonwinsmith 10 месяцев назад

Agree 100%. I couldn't have said it better myself.

@epbrown01 6 месяцев назад

@@hooksx Doesn’t that depend on the growth rate in comparison to the interest rate? If you borrowed $100,000 at 2% to buy Nvidia on January 2nd, the shares are worth $180,000 today and you paid about $500 in interest.

@thomassittinger8150 2 дня назад

@@epbrown01You can’t buy equities with SBLOC funds.

@sigg3504 6 месяцев назад

So you're only paying the interest on the loan but not the principal....correct? I think a whiteboard video would be great visually for this.

@shadoefoxyoutube 10 месяцев назад

Love your content, Sharon! Specifically like when you go over SBLOCs. You have a really great way of explaining a seemingly complicated topic and making it simple. If you were considering doing more SBLOC content, you got my vote 🙋‍♂️ Thank you for putting this together 😊

@sharonwinsmith 10 месяцев назад

Thank you so much! I will note to focus on more SBLOC content in the future.

@shidozu 6 месяцев назад

A quick google search of simply “What brokerages allow sbloc” leads me to a bunch of margin loan content. What brokerages do you know offer sbloc ?

@mblankenship15 25 дней назад

Sharon, love your videos. They are always very on point and extremely informative. Love your accent too lol!

@sharonwinsmith 24 дня назад

Thank you!

@Rocky-x8f 5 месяцев назад

Hi Sharon. Can you do a video by giving a practical example with numbers? Would really appreciate. Also have another question. What happens if you don't pay back the principal and interest? I heard you say you don't have to but also heard if its close to margin call then to pay it off? Something I'm confused about

@AncientAlien- 3 месяца назад

Thank you for sharing this information Sharon! Very concise and easy to understand!

@AdrianMilanio 7 месяцев назад

Amazing info in the video! I don’t know how you have more subscribers. Growing my portfolio and business to eventually get to the point of taking a SBLOC 📈

@sharonwinsmith 7 месяцев назад

Thank you! Best of luck on your business and investments 👍

@TheAngryAgent 3 месяца назад

Just found your channel. I could have avoided some big mistakes if I found this sooner.

@Sh0nuff73 10 месяцев назад

Great content and thanks for answering my question from an earlier post you did about whether or not you could/should put sbloc money in a money market account.

@sharonwinsmith 10 месяцев назад

Thanks for watching!

@TinkerToFIRE 10 месяцев назад

Thank you for your video! I am super new to this strategy as I am someone who always despised interest (Dave Ramsey person). I am now using SBLOCs to accelerate my taxable dividend growth portfolio and budgeting in 1% principal payoffs each month to not over extend. Feels like I have a mini rental property. Thanks again for all your knowledge!

@sharonwinsmith 10 месяцев назад

Glad it was helpful! Thanks for watching!

@TinkerToFIRE 6 месяцев назад

@@hooksxI invest in qualified dividends, so I pay 15% tax on dividends received up to $519k per year. If I ever choose to FIRE and stop working I would have zero tax on the first $47k in dividends not including writing off SBLOC interest. I chose a dividend growth strategy to create cash flow today to mitigate risk on each holding as well as have capital appreciation. I am not buying REITs with this money, I am buying dividend paying ETFs/stocks with at least a 8% CAGR and a long term track record increasing dividends. This strategy works in both bear and bull markets. Bull market I have more SBLOC margin to invest and in a bear markets I can compound my shares cheaper increasing my dividend yield on cost. So your opinion on it making no sense is just that, an opinion.

@Retired.at.40.Bored.at.50 7 месяцев назад

Very cool video. Thanks.

@sharonwinsmith 7 месяцев назад

Thank you!

@bigups1723 5 месяцев назад

GREAT VIDEO!!!

@sharonwinsmith 5 месяцев назад

Appreciate the kind words :)

@yopyop5546 8 месяцев назад

How does your brokerage account - in which you're doing SBLOC, options, margin, etc - interact with your Roth IRA? Thank you so much for sharing your knowledge!

@sharonwinsmith 8 месяцев назад

You wouldn't do an SBLOC with a Roth account. You would do it through a regular taxable account.

@landalat 5 месяцев назад

New subscriber here and love your video products. Very informative and realistic to real life situation.

@sharonwinsmith 5 месяцев назад

Appreciate the kind words! 😁

@ellieparker4976 Месяц назад

Great video! Just wondering if interest is tax deductible if SBLOC funds are used for personal living expenses (another business expenses)? Thanks!

@abbyfuji30 8 месяцев назад

Hi Sharon, Is it a good idea to use SBLOC money to buy a primary residence property as opposed to regular mortgage?

@neo02126 11 дней назад

can you transfer more stocks in from your brokerage account to pay off sbloc?

@smadadadad 10 месяцев назад

Came across your channel and love the content! This may be a reach but do you also have an understanding of how these strategies (specifically SBLOCs) may differ in the UK?

@sharonwinsmith 10 месяцев назад

Thank you for your kind words! I do not know for certain about any UK specific rules here. However, I know some lenders have different terms and requirements for UK residents in some cases.

@chapo90 Месяц назад

Sorry if I sound dumb or if my questions seem obvious, but this is new to me. Let’s suppose I put an asset up as collateral, take out a loan, and after several months, I get close to a margin call. I then add new assets as collateral without paying down the interest or principal-I just keep adding more collateral. Would that work? Or am I required to pay down a certain amount periodically?

@sharonwinsmith Месяц назад

Not a dumb question at all! With an SBLOC, you aren't required to pay anything down as long as you stay above the maintenance margin thresholds to avoid a margin call. If you want to create additional cushion for a margin call, you can transfer additional collateral (more stocks) and increase the threshold. You won't pay down the principal or interest as long as you don't transfer cash into the account or sell shares that are held in the SBLOC account. If you just keep adding more collateral, you just keep increasing the SBLOC borrowing capacity and adding additional cushion against a margin call in the future. Hope this answers your question.

@chapo90 Месяц назад

@@sharonwinsmith You are amazing! Thanks!

@chrisyee9507 7 месяцев назад

If you never pay down the loan balance and then you die…does the balance transfer to your kids? Who becomes responsible for the outstanding loan balance?

@sharonwinsmith 7 месяцев назад

Depends on how you set up your estate. There is the ability to have the shares sold and loan paid off or have the loan/strategy remain outstanding. Whoever owns the shares would become responsible for the loan if it remains outstanding.

@timcutler4708 2 месяца назад

I will be listening carefully for the difference between local bank SBLOCs and brokerage firm margin accounts

@ElLeNoir..ELconomics 10 месяцев назад

Happy holidays coach

@sharonwinsmith 10 месяцев назад

Happy holidays! 🦃

@jiangyi7617 3 месяца назад

Can you not pay interest at all,just let it accrue, will there be penalties for non payment?

@danjossart8425 4 месяца назад

Can you show an actual example of the 6 point something SBLOC with the related investment?

@SpaceTravel1776 Месяц назад

Different brokers call it different things, SBLOC is not always the term they use. Also different brokers offer different rates, and to further complicate it, they are all variable rates, so they go up and down all the time. I think Interactive Brokers is consistently one of the lowest rates, and they simply call it margin loans, where other brokerages separate margin loans from their SBLOC product and offer different rates for both. Different brokerages require different minimums, Fidelity you need to have a minimum of $500k in equities, others a lot less.

@ottobeatty9121 4 месяца назад

My brokerage set up something where the monthly interest amount is automatically pulled from a personal bank account. The monthly statements show the interest payments. Occasionally, I will make principal payments, so the balance stay below a threshold. Question: Are you saying you can let the interest accrue and still tax deduct the interest. You have to make the payments to deduct.

@AlbertChan1204 10 месяцев назад

Hi Sharon - I'm a new subscriber, and I love your content. Well researched and great perspectives that go deeper than other channels! I'm thinking about opening an account with Interactive Brokers based on a previous video. Do you have a referral link or anything that might give you a bonus for suggesting people?

@sharonwinsmith 10 месяцев назад

Thank you for asking - really appreciate that! I don't have a referral link. I generally try to stay away from affiliate income and only use affiliate arrangements in very limited situations. Trying to build up trust with my audience and remove any incentives to recommend something that I don't think is the absolute best.

@AlbertChan1204 10 месяцев назад

@@sharonwinsmith Totally understand and respect that decision to try to be transparent and unbiased! In this case, I'm going to sign up regardless, so if you want to get a referral link where it's mutually beneficial, please send. However, no pressure at all since it seems like more work for you to generate it!

@sharonwinsmith 10 месяцев назад

Feel free to go ahead and set up an account. Really appreciate you asking! 👊

@jakunikukyoshokuchen575 10 месяцев назад

Great video. The accrued interest should be included with the principal and not exceed 50% of the total stock value, right? Thanks in advance.

@sharonwinsmith 10 месяцев назад

That is correct

@keithA-f7m 9 месяцев назад

If you don’t pay back any of the interest what would consider an amount that is out of control of accrued interest ? Is there limit of accrued interest they will allow ? Thanks

@sharonwinsmith 9 месяцев назад

When the accrued interest is added to the balance of the outstanding SBLOC, you would have to take that into account when you are factoring in your ability to borrow up to 50% of your stock portfolio. So, the interest will increase the outstanding SBLOC balance and thereby reduce the available borrowing capacity for additional draws on the SBLOC. I try to never let my total outstanding balance of my SBLOC, including accrued interest, exceed 40% of my portfolio (using a reasonable estimate of the value of my portfolio at any given time).

@keithA-f7m 9 месяцев назад

@@sharonwinsmith Thank you for responding ! If i didn't want to take anymore draws and let the interest run forever to the point it exceeded 50% of my portfolio would that be considered a margin call ? also im new to IBKR pro i was with Charles Schwab and My buying power is 3x of what i deposited im assuming that amount is what there allowing me to trade on margin ? I really appreciate your time and enjoy your videos Thanks!

@sharonwinsmith 9 месяцев назад

The buying power is not related to an SBLOC. That would be relevant if you were buying shares on margin - which is something I would never do. A margin call is triggered when your portfolio value falls below the maintenance margin threshold. That is usually different from the 50% borrowing. You can borrow up to 50% of your portfolio value. So once the interest added exceeds 50%, you can't take anymore of an SBLOC at that point. You won't necessarily have a margin call at that point unless your portfolio value drops below the maintenance margin requirements for the SBLOC.

@hooksx 6 месяцев назад

Accrued interest continues into perpetuity if it's never paid back, slowly causing the debt/value of the portfolio to decline. When that ratio is skewed enough, the brokerage will liquidate holdings (taxable event) to service the loan.@@sharonwinsmith

@jmciver767 10 месяцев назад

As you stated, unlike a regular loan (like a mortgage) you don’t have to pay down the principle and/or interest of a SBLOC/margin loan. So assuming you use margin on a regular basis (say every month for example) to buy more investments and/or use the SBLOC/margin as discretionary income, what would be a good “rule of thumb” for how high you should let your SBLOC balance get relative to the value of your portfolio before paying it down? Assuming you pay attention to your maintenance requirements (never getting close to a margin call), at some point, I would think you would want to pay down at least some of the principle (and interest) of the SBLOC?

@sharonwinsmith 10 месяцев назад

Great question! I typically wouldn't let my SBLOC get above 40% of the value of the portfolio. However, with dividends and appreciation, you would expect the value of the portfolio to increase over time so that SBLOC available is going to increase. I've never been in a position where I've started paying off my SBLOC balance. Though of course one could foresee that being a possibility in a really bad market downturn.

@jmciver767 10 месяцев назад

⁠@@sharonwinsmithThanks for the reply, really helpful! Follow on question… What would be a good strategy for how often to use (or increase) your SBLOC balance? Use it routinely (i.e. every month or quarter) to dollar cost average your investments? Or only when a unique investment opportunity becomes available?

@sharonwinsmith 10 месяцев назад

I look at it every quarter or so and see if it makes sense to go higher on the balance. If I feel there is room, I would look for opportunities to deploy capital at that point (e.g., in an investment fund).

@-bu6kzL 2 месяца назад

So if I borrow $50,000 at 7% interest, I would have to pay $3,500 A DAY!?!?

@birpydoe82 Месяц назад

First off minimum amount you can borrow is $100,000.

@birpydoe82 Месяц назад

2. No lol; $3500 total spread out every month up to 2 years

@MichaelStanwyck 2 месяца назад

I’m having a hard time understanding the “never pay it off” strategy. Presumably the lender wants to make their money at some point. Is it just up to your heirs to pay it off with their inheritance? Will banks just lend you money forever and not ever expect anything in return?

@SpaceTravel1776 Месяц назад

It’s “credit” like a credit card, so as long as you make the interest payments, yes, you never have to pay off the principle, just like a credit card. The banks make money from the interest. Remember that it is backed by your investments, so the banks are guaranteed their money back. Your credit is limited by the $ in investments you have. If you own Apple shares and the stock tanks, you will be forced to sell shares (probably automatically) if you get close to a certain ratio of not being able to pay back the principle. The whole idea is that your stocks will perform better than the loan interest rate in the long term, stocks 8-10% while interest rates almost never go over 7%.

@dgaz3057 7 месяцев назад

Compare this with an equity loan, maybe I should sell my other house and put it in stocks?

@SpaceTravel1776 Месяц назад

Why not a little bit of both to diversify the risk? Some SBLOC and then home equity loan. You have zero stocks and only a second home or both?

@Patlukkar 5 месяцев назад

Hi Sharon, I got a quote on a SBLOC with an interest rate of 9.44%. That seems high and I'm wondering if this is still a good idea.

@sharonwinsmith 4 месяца назад

I have a significantly lower rate through IBKR. You should shop around for a lower rate on the SBLOC. Whether it's worth it depends on how you are planning to use the funds and the SBLOC strategy.

@RolandDeAragon 10 месяцев назад

Since it's a line of credit I'm assuming the interest that is a accruing is simple interest versus amortized interest like in a typical loan correct?

@sharonwinsmith 10 месяцев назад

It would be more akin to simple interest. Even though the rate is variable, it is just applied to the outstanding balance.

@RolandDeAragon 10 месяцев назад

@@sharonwinsmith Thanks for responding. Variable? Meaning it changes? If so is it the change dramatic?

@sharonwinsmith 10 месяцев назад

Correct - the interest rate on the SBLOC is variable meaning it changes. I've seen it go from about 1.8% when rates were low to about 6.3% on my SBLOC right now. That is a dramatic change. However, I'm happy to borrow at a pre-tax rate of 6% all day long because my secondary investment returns far exceed that. It is also much lower than you are going to get from any bank or on an SBA loan.

@RolandDeAragon 10 месяцев назад

@@sharonwinsmith I appreciate your response. also do you create your own payment plans to repay the loans back? If so, the owed loan balance would decrease and that 6.3% interest would also decrease in dollars I mean, because the loan owed keeps getting paid down. And your stock portfolio keeps rising in value. Hopefully I've said that right.

@sharonwinsmith 9 месяцев назад

I don't ever pay the loan down.

@markkeller9378 3 месяца назад

So if I understand, if you pay the interest only every month…….thats all you really need to do forever, for immediate use of the tax free money for the rest of your life. And if you have no reason to leave any inheritance, then the bank would repay itself from your portfolio when you pass.

@tommasiero5234 9 месяцев назад

Thoughts on paying iit off with dividends from the same stock you’re borrowing from?

@sharonwinsmith 9 месяцев назад

I usually have a DRIP in place but definitely think paying down the SBLOC over time with dividends is a great strategy as well.

@josephputnam7586 4 месяца назад

So, if I get a 50k sbloc loan at 6% daily if I am understanding this right I get 3k a day added to the loan balance?

@-bu6kzL 2 месяца назад

She clearly made her money selling these financial products lol

@ProgrammingWIthRiley 4 месяца назад

If you don’t pay it back the stocks will be sold. This is not a good wealth transfer strategy.

@SpaceTravel1776 Месяц назад

Wrong, the banks make money off you paying the interest on the loan, it’s exactly like a credit card, they hope you never pay back the principle, it’s how banks make money, from interest from loans. Do the math yourself, just make the monthly interest payments, in good stock market years you could easily do that without any other source of income other than selling small chunks of your investments off. The whole idea is that your stocks will perform better than the interest rates in the long term. Wealthy people use this strategy because of their high tax rates. You saying you know more than their expert accountants and lawyers about transferring wealth to heirs?

@ProgrammingWIthRiley Месяц назад

@@SpaceTravel1776 Try the strategy and let me know how it works for you.

@ProgrammingWIthRiley Месяц назад

@@SpaceTravel1776 I bet you don’t even have wealth to leverage this strategy with. You’re not an accredited investor

@SpaceTravel1776 Месяц назад

@@ProgrammingWIthRileyYou don’t need to be accredited. Different brokerages have different minimum equity requirements in order to take out a line of credit on your investments. Fidelity is $500k. Schwab is $100k. Educate yourself my man.

@ProgrammingWIthRiley Месяц назад

@@SpaceTravel1776 you have neither