Borrowing to buy shares
What you'll learn:
- The pros and cons of margin lending and using the equity in your home.
You may have already taken the home ownership plunge. Or if not, you probably will at some point. But you’re unlikely to be able to buy without borrowing, and these days many people borrow 90% of the property’s value. Perhaps even more.
Over time the value of your home should increase. At the same time, the value of the debt you owe to the bank decreases as you pay it off. The result is that the bit in between—your equity, or your ownership interest in the property’s value—grows.
Can the same principle be applied to shares? In theory yes. But there are plenty of pitfalls of which to beware when borrowing to buy shares. But before explaining them, let’s look at the two main ways to borrow to buy shares.
