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Margin Loans Best place to get a margin loan

Discussion in 'Finance & Banking' started by tropic, 14th Sep, 2006.

  1. tropic

    tropic Well-Known Member

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    Can anyone tell me where is the cheapest place to get a margin loan? My bank charges 1.25% more than equity loan.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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
     
  3. Giddo

    Giddo Active Member

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    I have one with Suncorp that suits me ok.
    For less than 500k, a fixed term of either 3,6,9, months it is 8.4%.
    Dunno if that is any cheaper than the one you are looking at?:)
     
  4. tropic

    tropic Well-Known Member

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    Let me explain my situation.
    I have most of my investments in shares (top 100 ASX) and international managed funds. My lender will give a ratio of 70% LVR on most of them.
    I only have 1 IP and would like to get more but still concern about getting one in Perth in the current market.
    My plan is only to purchase IP's that has gross rental income of minimum 5%, just in case we don't have capital appreciation for a while/years, at least I will not be out of pockets too much while waiting for it to go up. We just had the biggest boom in history (Perth is still in it?), will the next boom be far away?
    My current IP has 3% gross rental income and I don't want to get trapped in negative gearing. I will wait until the yield improve, I believe it will (equilibrium).
    Because most lenders don't count shares in their equity calculation unlike IPs. If I move my shares portfolio to a margin loan I will have LOC, that I am currently using for my share borrowing, to purchase IPs.
    My current borrowing level on my shares is only 30%.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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
     
  6. Bob

    Bob Well-Known Member

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    Leveraged Equities Powerhouse

    I have been looking at the Leveraged Equities Powerhouse option. Anyone out there used this product and would like to comment???


    Bob
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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.
     
  8. Bob

    Bob Well-Known Member

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    Margin loan


    Thanks Sim. For some reason I never thought about the interest rate....I suppose it's a bit like their freq flyer program on margin loan lending, you don't get the Navra discount



    Bob
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yeah, but you get really cheap FF points :D :D

    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.

    :D
     
  10. Bob

    Bob Well-Known Member

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    I recently made a booking to Thailand with Qantas using FF points. 60K points return to Bangkok which effectively cost me $60K (one point per dollar) then they charged me $298 for taxes.....hmmmm. I might stick with the Navra discount on my ML

    Bob
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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

    Bob Well-Known Member

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    Navra discount


    Sim,

    8.35percent. I capitalise so there is no interest in advance discount.

    Bob
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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 :D

    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.
     
  14. Bob

    Bob Well-Known Member

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    Sim,

    You've obviously done your homework....I looked at the FF points with LE but I've always tried to keep the interest rate as low as I can especially as I am capitalising........thanks

    Bob
     
  15. Tropo

    Tropo Well-Known Member

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    "..... then they charged me $298 for taxes.....hmmmm. I might stick with the Navra discount on my ML"

    Bob "

    Bob,
    In case of taxes...
    I booked a flight to Europe and I am paying $ 521 tax (per head).
    So, tax they charge you, sound not that bad to me.
    ;)
     
  16. tropic

    tropic Well-Known Member

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    I am actually borrowing to buy shares and IP using my PPOR as a security.
    I still can squeese another IP using the equity on my house.
    Looks like it still the cheapest option.
    I was hoping to find a lender that will lend me a margin loan on similar rate to a home loan.
     
  17. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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.
     
  18. tropic

    tropic Well-Known Member

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    Yes, I am planning to increase my shares portfolio. I will pick up some more Aus shares this coming months during market weakness. The option for me to get the borrowing higher like 50 - 60% is by margin loan. Once I use up all my LOC my lender will not lend me more. I am pretty much cashflow neutral with my shares portfolio now and will add moderate to high yielding shares so I am not trapped with large negative gearing but still increase my portfolio.
    Eventually I have to consider if paying higher IR through margin loan is worthwhile. The maximum I will borrow will be 60%.