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Margin Loans Margin lending interest rates

Discussion in 'Finance & Banking' started by crc_error, 9th Jul, 2007.

  1. crc_error

    crc_error The Rule of 72

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    Just wonder what people here are paying for their margin lending?

    I'm with comsec and paying 9% PA.. are there other institutions with better rates?
     
  2. Glebe

    Glebe Well-Known Member

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  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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.
     
  4. handyandy

    handyandy Well-Known Member

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    I think it really comes down to the size of the margin loan.

    When you get up to the multi mil you can certainly do deals. Currently with Colonial Calia product we get 7.3% with interest paid in advance for 1 year capatilised.

    I tried to get BT to drop their rate or at least agree to a rate. The best I could get from then is the listed rates ones you started using their margin. What a joke. :(

    This is margin loans for MF's I assume the same rates would apply for shares.

    Cheers
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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 ?
     
  6. handyandy

    handyandy Well-Known Member

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    That's correct.

    The loan is actually 2 part, namely an LOC and a margin loan.

    The LOC is secured against property up to 80% of the banks valuation and the margin loan is just a standard margin loan with no direct link to the LOC portion of the loan.

    I get a statement in 2 parts and consequently interest charges are on the seperate parts of the statement, reflecting the discreet balances.All up its a pretty big package.

    Just as an asside, I accidently paid down the LOC bringing it into credit and they actually paid a decent interest rate. I can't remember the exact figure but I remember thnking that it was 'decent'.;)

    Cheers
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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 ?
     
  8. Here_To_Learn

    Here_To_Learn Well-Known Member

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    0.1% interest on $1Mill over 12mths = $1,000pa. It's all a matter of perspective. ;)

    Off to call my lender ...
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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 :D

    (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)
     
  10. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    This might be because you are pre-paying interest? I know most lenders will give a discounted rate to get people to pre-pay. But even so, 7.3% on a margin loan is pretty sweet.

    Mark
     
  11. handyandy

    handyandy Well-Known Member

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    The LVR on the margin loan is MF dependent. With Navra its well into the 70% range. I don't have my paperwork handy so can't be precise. I am currently at 40% LVR on the margin loan.

    The LOC LVR goes out to 80% of the original valuations. I have not revalued for some time but ones I finish my PPOR I may get valuations done.

    For Navra its 75% LVR. The following site has all the info. You can also see the various rates that are available, but I am beating that by about .5%;)

    https://www.colonialgearedinvestments.com.au/Default.asp


    Cheers
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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 ?? :confused: )
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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).
     
  14. handyandy

    handyandy Well-Known Member

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    I started most of these loans prior to finishing my business so there was plenty of income for them to salivate over.:)

    At the time they were really easy to deal with and it took no time at all to establish the facilities (I have 2 loans with them). Certainly a lot easier than any of the other banks I deal with.

    I assume that the margin facility that they provide is somehow worked out based on the property part of the facility. It appears to be a very high multiple, something like 1:4.5 $1 in the LOC gives $4.5 in the margin loan. I have never actually enquired as how the margin amount is determined.

    Packaging up properties hasn't effected my flexibilitybut then I don't have any intention of selling property. I do still have a number of 'packages' so from that aspect I am not exposed to just one bank.

    Cheers
     
  15. bundy1964

    bundy1964 Well-Known Member

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    9.1 to 8.6 so more is better. Currently reciving 0.25 discount after having bought shares in the lender....either that or someone there thinks I have a pretty face :eek:

    Not sure if I will go to 8.35 for over 500k, time will tell.
     
  16. HHH

    HHH Active Member

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    Not sure if it ended June 30, but just days prior we got 7.79% locked in for twelve months with Bank of Qld. We had to prepay, but we just capitalised the interest anyway.

    Pretty good rate considering no other fees involved at all, only 50K loan, and no other security offered.
     
  17. pjb89

    pjb89 Active Member

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    Hiya HHH

    I am in the thoes of researching and setting up a margin loan structure and have never heard of getting a fixed loan and capitalising the interest....

    With my very limited understanding of how margin loans work, you would have to pre-pay the interest, but how can you capitalise it if you have already pre-paid it?



    Pedro
     
  18. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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.
     
  19. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Sim - if I understand correct then ... you are able to draw down your existing ML to pre-pay interest ?

    Understand then that this will raise your LVR. But if the interest deduction is considerable it may make a lot of sense. I never thought about this before.
     
  20. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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.