HELOC vs SBLOC: How to Choose the Right Borrowing Strategy

IN THIS ARTICLE:

• What HELOCs and SBLOCs Are
• Connection to Taxes and Retirement
• Risks to Understand
• The Right Strategy for You

What HELOCs and SBLOCs Are and How They Work

There are two powerful borrowing tools worth knowing about — home equity lines of credit (HELOCs) and securities-backed lines of credit (SBLOCs). Both can provide access to cash, but they work differently.

A HELOC is a revolving line of credit — meaning you can borrow, repay, and borrow again. It’s secured by the equity in your home, the portion of your home's value that you own outright (e.g. your home's current market value minus the mortgage balance). Typical HELOC features include:

• Borrowing limits: Up to 75% to 80% of your available home equity.
• Rates: Tied to the Prime rate, a benchmark interest rate that major banks use and that moves in step with Federal Reserve policy decisions.
• Terms: Often includes a draw period, the time when you can actively access funds. It’s followed by the repayment period — when the principal plus interest must be paid back.
• Tax implications: Interest can be tax-deductible if funds are used to build, buy, or substantially improve the home.
• Approval timeline: Applications can take weeks, include an appraisal, credit check, and extensive income verification.

A securities-backed line of credit, or SBLOC, is also a revolving line of credit. It’s secured by the assets in your investment portfolio — things like stocks, bonds, and mutual funds. Typical SBLOC features include:

• Borrowing limits: Up to 50% to 60% of your eligible portfolio value.
• Rates: Tied to the Secured Overnight Financing Rate (SOFR), a widely used benchmark that reflects the cost of short-term borrowing in broader financial markets.
• Terms: Interest only payments, principal repayment schedule isn’t generally required.
• Restriction: Funds cannot be used to purchase additional securities or make further investments.
• Approval timeline: Typically days.

The loan-to-value ratio, or LTV, is a key concept in both lines of credit. It measures how much you are borrowing compared to the value of your collateral — your home equity or your portfolio. A higher LTV means you are borrowing a larger share of what your collateral is worth, leaving less room if values decline.

Keeping your LTV strategy conservative, with a borrowing level well below the maximum your lender allows, is one of the most important risk management steps you can take with either option.

How Borrowing Connects to Your Tax Strategy and Retirement Goals

Choosing between a HELOC and SBLOC has real implications for your taxes, your retirement plan, and your long-term financial goals.

The main appeal of SBLOCs is the ability to access funds without having to sell investments in the portfolio. Securities-based lending allows you to stay invested and not derail your investment strategy — the assets remain in your portfolio, and you may continue to reap the benefits of your holdings in the form of dividends, interest, and potential appreciation.

With this approach, you can also control the timing of any capital gains. When you sell an appreciated investment, one that has grown in value since you purchased it, you may owe capital gains taxes on the difference between what you originally paid and what you received.

An SBLOC allows you to access the value of those assets without selling them, which means you preserve the investment and defer those taxes for as long as the assets remain in your portfolio. The funds you borrow are not treated as taxable income, which is one of the features that makes SBLOCs attractive from a tax-efficient borrowing standpoint.

“In my opinion, investors with at least $250,000 in taxable assets should consider establishing a liquidity framework well before a need arises,” says Aneri Jambusaria, LPL Financial Chief Wealth Officer. “The goal is to avoid being forced into a decision when time, taxes, or market conditions are working against them.”

For pre-retirees and retirees, there is an equally compelling reason to think carefully about which borrowing tool fits the moment. Accessing funds through a HELOC or SBLOC can provide cash in a given year without generating additional taxable income — which matters considerably if you are managing required minimum distributions (RMDs) from retirement accounts, working to stay within a specific tax bracket, or preserving room to complete Roth conversions.

Weighing the Advantages: SBLOCS vs. HELOCS

Risks: What Can Go Wrong and Why It Matters

Both tools carry risk, and understanding those risks before you borrow is essential. With a HELOC, the primary risk is direct since your home is the collateral. If you experience financial hardship and cannot repay, you could lose your home.

With an SBLOC, the primary risk is a margin call. This occurs when the market value of your investment portfolio drops enough that the assets no longer meet the lender's minimum requirement. When a margin call happens, you may be asked to deposit additional assets into the account, repay a portion of the loan balance, or sell portfolio assets when markets are already down.

Neither option is inherently dangerous when used thoughtfully. The risks become most consequential when borrowing levels are too aggressive or when borrowed funds are not connected to a clear, deliberate purpose within a broader financial plan. Understanding the downside scenarios and how to reduce their likelihood puts you in a much stronger position to use these tools with confidence.

Building a Borrowing Strategy That Works for You

While SBLOC interest rates are frequently lower than HELOC rates, deciding which one is right for you is not purely an exercise in comparing interest rates. The right choice depends on what you are borrowing against, what you plan to do with the funds, how the decision interacts with your tax picture, and what your retirement and estate goals look like. Before you decide, these four questions are worth working through carefully:

• What am I borrowing against, and how comfortable am I with that collateral being at risk?
• What am I using the funds for, and does one option offer a tax advantage?
• How does this borrowing decision interact with my retirement income timeline or RMD situation?
• Are there estate planning considerations that make one option more advantageous?

There is meaningful potential in understanding the full range of borrowing tools available to you and even more potential in using those tools as part of a coordinated financial plan. A knowledgeable advisor can help stress-test borrowing decisions against your complete financial picture, model the tax implications across multiple scenarios, and help ensure that a near-term liquidity solution does not create unintended consequences for your long-term goals.

If you are ready to explore whether a HELOC, an SBLOC, or a combination of both could fit your financial plan, connect with an LPL Financial advisor today. The right borrowing strategy could bring more of your financial goals within reach — without sacrificing the assets you have worked hard to build.