Margin Loans Margin lending interest rates

Depends on how much you borrow.

9% is about average for amounts less than $250K (most start at about 9.1% or 9.2%).

For every $250K you have borrowed, you can generally get them to knock off 0.25% from the rate, up to a maximum of 1.0% off ... so with amounts of over $1m borrowed, you can expect to pay around 8.0% or so. You don't seem to be able to get much lower for amounts significantly over $1m with standard margin loan products.

This is for standard variable interest paid monthly in arrears margin loans ... if you put up residential property as security you can generally get it cheaper again, but then that's basically an expensive LOC against your real estate (you can generally get cheaper LOCs on the real estate alone and then use that as capital for a stand-alone margin loan).

Remember that 0.1% interest on $100K over 12 months is only $100pa, or $8.33 per month ... so in my opinion it's not worth sweating over these small differences in rates.

 

As I said, a standard loan you won't get much below 8% ... even the Calia product relies on having real estate in the portfolio loan to get the lower rates - otherwise with no real estate the rate reverts to 8.05% (from the info I've found - not sure it is up to date).

I'm pretty sure I've seen you mention that you have real estate in your loan portfolio mix too handyandy ? I assume it's all through the Calia product ?

 

I know your gearing level is pretty low, so it's not that important to you, but what kind of LVRs are they offering on managed funds and shares compared to other products ? Is there a list available online that you know of - or is that only shown to clients ?

 

Actually ... think of it this way.

8.0% interest on $1m = $80Kpa
8.1% interest on $1m = $81Kpa

When you are paying over $1500 a week in interest, an extra $19 doesn't make that much difference either way.

Sure, if you can get a better rate, great ... but as I've said before - in my opinion, a better LVR (ie bigger buffer) is far more valuable than a $19 a week saving in interest.

If you're playing with loans over $1m and $19 per week is make-or-break, then I think you're a bit over exposed for your SANF.

I rate the importance of margin loan features in this descending order of priority:

1. LVR
2. buffer size
3. customer service
4. interest rate

That's just my opinion though - I always tend to focus more on value than on cost

(PS. I'm currently paying 8.05% fixed 12 months in advance on a 7 figure loan, with the remainder of that loan variable at 8.15%; and 8.6% on loan #2 which is under $1m but with much much higher LVRs and hence borrowing capacity - I expect that second loan to be over $1m in the next month or so, and expect a corresponding drop in rates - hopefully to about 8.1% variable)

 

I remember seeing that site now - but when I checked their LVRs they didn't have much coverage of the funds I invested in. That seems to have changed now - good LVRs all 'round (except for the CFS W/S Geared Share Fund ?? )

 

How good are they at considering income from the investments to service the debts ? I'm assuming they must be okay, since the level of debt you are carrying and no longer running your business would scare most traditional lenders I'd imagine.

I'm now in the situation where I've lost my servicability through traditional loans/lenders, and am relying 100% on my portfolio to be self funding. Haven't looked at refinancing any of my property yet (not enough growth to justify given the lower LVRs I'll be forced to use now) ... but it would be interesting to compare what I could do with something like this Calia product. Although I've always gone out of my way to avoid portfolio loan structures until now for a number of reasons (mostly flexibility).

 

Rather than using cash from your bank account to pre-pay the interest, you draw down on the available loan balance to pay it. Your loan and hence LVR increases, so you must have sufficient buffer available to cover it.

 

Yup - it's kind of cool ... I pre-paid the interest on $1.2m of one of my loans (left the rest variable) and had that money paid from my margin loan - which increased my LVR, but not by too much. So for no cash outlay on my part, I now get an extra $100K of deductible expenses.

Don't forget that this is a one-time trick ... you end up paying more the following year (because you have lower expenses as the interest was already paid for) unless you continue to pre-pay - it then becomes a never-ending circus.

I only did it this year because of my financial situation, and I'll most likely not pre-pay next year because I can afford not to do so.