A real-world case study on using a pledged asset line as a short-term bridge when buying a new home.
I’ve been working with Erin and Bill for just over five years.
They originally relocated to Georgia from the Bluegrass State for a reason that comes up again and again in retirement planning. They wanted to be closer to their children and future grandchildren. Proximity to family matters, and the happiness boost that comes with it, is very real.
Like many thoughtful retirees, they planned carefully. They built what they believed was their ideal home and settled into this next chapter with confidence.
For a while, everything worked exactly as planned.
Until it didn’t.
After living in the home for several years and navigating a couple of health developments, they realized their custom build was missing one critical feature they had not fully appreciated at the time. There was no primary bedroom on the main level. What once felt like a design preference had become a practical necessity.
The house they loved no longer fit the season of life they were entering.
That is when they came to me with a very specific question.
How do we move once, without a temporary rental, without storage units, and without getting a mortgage?
At its core, this was a timing and liquidity issue, not a question of affordability.
The Real Problem Was Not Affordability
From a net worth perspective, Erin and Bill were in a strong position. They had substantial equity in their current home and more than enough assets to comfortably afford their next one.
The issue was not whether they could afford the next house.
It was how to access liquidity without creating new problems.
They were clear about what they did not want to do:
- They did not want to sell their home first and feel pressured to buy.
- They did not want to rent temporarily and move twice.
- And they absolutely did not want to sell a large block of low-basis stock and trigger unnecessary capital gains taxes.
That last point is often overlooked.
On paper, appreciated investments solve a cash problem. In reality, selling them can increase taxes, potentially raise Medicare premiums, and reduce long-term portfolio upside, especially when the liquidity need is temporary.
Most people default to a home equity line of credit (HELOC). A HELOC feels familiar. It is tied to the house. It seems simple.
Instead, we explored a different approach.
Using a Pledged Asset Line (PAL) as a Bridge
By using a pledged asset line, commonly referred to as a PAL, secured by their joint brokerage account at Schwab, Erin and Bill were able to create a clean bridge from one home to the next.
There was no traditional mortgage.
No underwriting.
And no need to liquidate low-basis investments.
In simple terms, they used their brokerage account as collateral to temporarily fund the purchase of their next home. They then sold their existing home on their own timeline and paid the line back once the sale was complete.
They moved once, kept their investments intact, and avoided selling appreciated assets unnecessarily.
What a Pledged Asset Line Is (and Is Not)
A pledged asset line is a securities-backed line of credit issued by a bank and collateralized by non-qualified investment assets.
Eligible collateral includes:
- Individual and joint brokerage accounts
- Revocable trust accounts
- TOD and other non-qualified accounts
Not eligible:
- IRAs, Roth IRAs
- SEP or SIMPLE IRAs
- 401(k)s or other qualified accounts
The line can be used for nearly any purpose, including real estate purchases, taxes, or short-term liquidity needs.
The one thing you cannot use a PAL for is buying securities.
That is what margin accounts are designed to do.
At Schwab, pledged asset lines generally require a minimum of $100,000 in eligible non-qualified assets. Other custodians may have higher minimums.
How Advance Rates Actually Work
The amount you can borrow is determined by the advance rate, which is the percentage of your portfolio value the bank is willing to lend against.
At Schwab, advance rates typically look like this:
- 70% on equities such as stocks, ETFs, and mutual funds
- 80% on bonds
- 95% on cash and cash equivalents
For example, consider a $1 million portfolio made up of:
- $700,000 in equities
- $250,000 in bonds
- $50,000 in cash
That portfolio would support an approximate line of $737,500, or just over 70% overall.
This is one of the main differences between a pledged asset line and margin. It is also a key distinction between a pledged asset line and a traditional mortgage or HELOC, even though all three (PAL, mortgage, HELOC) can be used to purchase real estate they function very differently behind the scenes. Margin advance rates are typically closer to 50% and come with very different risk dynamics.
Interest Rates and How the Line Is Paid Back
Interest on a pledged asset line is based on SOFR plus a fixed Interest Rate Spread.
SOFR, or the Secured Overnight Financing Rate, is published by the Federal Reserve Bank of New York and floats over time. The spread is fixed and generally decreases as the size of the collateral increases. Rates, advance percentages, spreads, and eligibility are subject to change and vary based on portfolio composition and market conditions.
Interest is calculated monthly and debited around the 15th of each month.
There is no required principal payment schedule. You only pay interest on what you actually borrow, and the line itself does not have an expiration date.
For Erin and Bill, the plan was straightforward and intentional.
They established a PAL and borrowed $900,000 at SOFR + 2.9% fixed spread (just over 6% combined) and purchased their new home with an all-cash offer. They moved at their own pace without selling their existing home first, without renting, and without taking on a traditional mortgage. Once settled, they sold their departing home and used the sale proceeds to pay off the pledged asset line in full. During the four months the loan was outstanding, they made monthly interest payments of roughly $4,500 per month which was less than what they would have paid for a suitable rental and storage unit. The PAL functioned purely as a bridge, the borrowing period was temporary, the repayment source clearly identified in advance, and the line was paid off once the purpose was served.
Used strategically, the line provided flexibility and control without becoming a long-term debt obligation.
Applying for a PAL Is Surprisingly Simple
If you work with an advisor who manages your Schwab account, the application can be submitted directly through Schwab Advisor Center. Retail clients can also apply directly through schwab.com.
Approval typically takes about a day.
Importantly, nothing about your existing account setup is disrupted. Linked banks, recurring distributions, and named beneficiaries all remain in place.
Schwab PAL vs Fidelity SBLOC
Both Schwab and Fidelity offer securities-backed lines of credit (SBLOC), but the structure matters.
At Schwab, the pledged asset line is issued directly by Schwab Bank.
At Fidelity Investments, the comparable offering is often referred to as an SBLOC and is issued through Goldman Sachs Private Bank Select (a third-party pledge bank).
The most meaningful difference is access to funds.
With Fidelity’s structure, collateralized accounts cannot maintain linked banks or beneficiaries, and distributions require a formal release of collateral approved by Goldman. Many clients end up establishing a separate SBLOC account to manage this complexity.
That distinction alone can influence which platform makes sense for a given household.
What Could Go Wrong? Maintenance Calls
The primary risk with a pledged asset line is a maintenance call.
If the value of the pledged assets falls below the outstanding loan balance, the bank may require you to add collateral or pay the line down.
This risk is manageable with thoughtful planning:
- Borrow conservatively and avoid maxing out the line
- Maintain diversification and avoid concentrated positions
- Use higher advance-rate assets such as bonds and cash
- Keep separate liquid assets available as a backstop
Used responsibly, maintenance calls are rare. Used aggressively, they can create stress at the worst possible time.
Why This Strategy Works for the Right Situation
A pledged asset line can be an excellent solution when:
- You have substantial non-qualified assets
- The liquidity need is temporary
- You want to avoid selling appreciated investments
- Flexibility and timing matter more than fixed payments
It is not a replacement for a mortgage in every situation. But as a bridge strategy, it can be remarkably effective.
For Erin and Bill, it allowed them to move forward confidently into the next chapter without unnecessary friction, taxes, or disruption.
Sometimes good planning is not about doing something flashy. It is about avoiding the mistakes that quietly erode wealth over time.
If this approach sounds like something that might apply to your situation, it may be worth discussing with your financial advisor before making any decisions. A pledged asset line can be a useful planning tool in the right circumstances, but it is not a universal solution. The details matter.
This information is provided to you as a resource for informational purposes only. This information is not intended to, and should not, form a primary basis for any decision that you may make. Always consult your own tax advisor before making any tax planning considerations or decisions. The views and opinions expressed are for educational purposes only as of the date of production and may change without notice at any time based on numerous factors.
