Margin Loans Best place to get a margin loan

The answer always is "it depends".

What are you looking to invest in ? Different margin lenders offer different LVRs for different funds and shares. A lender offering a higher LVR on a fund can potentially make better returns for you than a lender offering a cheaper interest rate.

InfoChoice is always a good place to start: INFOCHOICE | Investment | Margin Lending | Compare | Tables

 

So you currently borrow to invest in shares using your IP as security ? Is it something simliar in concept to Leveq's "Powerhouse" product ?: Leveraged Equities Powerhouse

 

Bob - it's a very expensive LOC ... currently 8.20%. The only benefit I can see is the convenience of having all your loans in one place (which is how they market it). That's a pretty minor benefit in my opinion - and vastly outweighed by the downsides of such a structure.

I think you'd be better off getting a LOC via another lender at a cheaper rate, and then taking that money and investing it with margin ... eg. if you have $100K from your LOC, you can buy up to $250K of shares/funds margined at 60% LVR through any margin lender you choose.

 

Yeah, but you get really cheap FF points

If you work it out based on the difference between the interest rates you'd pay elsewhere and their rates on the FF loans, then work out the equivalent dollar-per-point (I calculate dollars per hundred points), it actually works out to be pretty cheap points, especially if you consider they are effectively tax deductible, thus reducing the real cost further.

No good for domestic travel (too expensive given how cheap you can fly domestically), but much better value for international flights !! Only works if you are already intending to do long-haul international trips and have enough points to make it worthwhile (at least 300,000 points, depending on where you are going and how many people are travelling).

You'd also want to have at least a $500K margin loan to get better points-per-loan-dollar payment.

 

Can I ask what your Navra discounted interest rate is at the moment ?

 

The current interest rate on the LE Margin Flyer loan is about 9.05% ... that's 0.7% difference for the benefit of gettign frequent flyer points.

For a margin loan of $500K, that works out to be $3500 per year more in interest costs. For that money, you will get 250,000 points per annum. That works out to be $1.40 per 100 points (1.4 cents per point). I'm ignoring tax in these calculations too, which would make it even cheaper.

Current cheapest prices for return Red e-Deal tickets to Bangkok, economy class, flying in January, is $1667 * 2 = $3334 total

It costs 30,000 points each way each, or 120,000 points total for two people. At 1.4c per point, that's a cost of $1680 for the two return flights. Add in taxes ... I'm not sure how much, but probably a couple hundred dollars, still likely to be less than an equivalent spend of $2000 for the return flights. Significantly cheaper than paying for them !

... and if you have more than $500K in loans, you'll get enough points to do this twice a year

If you do the calculations based on flying business class to the US ... the savings actually work out to be pretty good ... return business class tickets for effectively half price. That's if you can get frequent flyer seats to the US though

Just as a matter of interest, I am actually in the process of setting up a second margin loan with another lender to get better LVRs ... Leveraged Equities are good with some funds, but not so good with others ... I'll be splitting my funds between the two lenders depending on which has the best LVR for each fund.

 

It may be the cheapest option, but I don't think it is the best use of your equity. Do the sums on your potential returns (after interest costs) from leveraging to 50% or 60% using a standard margin loan, using cash from your LOC (assuming you hadn't used the money for share purchases) to seed the margin purchases.

I think you will find that you would have a much larger portfolio available to you, and assuming you get decent growth, your overall returns should be higher, despite the higher interest costs.