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Margin Loans Margin Loan questions

Discussion in 'Finance & Banking' started by Glebe, 26th Feb, 2006.

  1. Glebe

    Glebe Well-Known Member

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    Hello,

    I've got some margin loan questions.

    Firstly, does anyone know if it is possible to move your managed funds from one margin lender to another without having to sell/buy?

    Secondly, does anyone have a list of margin lenders that accept Navrainvest*?

    Thirdly, does anyone have experience with negotiating different rates with margin lenders like what seems to occur in the mortgage market?

    Reason I ask these is that Leveraged Equities are looking a bit steep in the 8.x%'s, I could be looking at 7.4%-7.6%'s elsewhere... making the switch or renegotiating could be worth thousands to me.

    Cheers

    Glebe.


    * Infochoice is wrong:

    Managed Funds & Trusts Results:-

    Fund 1: NAV0002AU - Navra Blue Chip Australian Share Wholesale Fund

    INSTITUTION: Fund 1
    ANZ Bank -
    BT Financial Group Ltd 70
    Colonial Margin Lending 66.70
    CommSec 70
    Equity Margins -
    Goldman Sachs JBWere -
    HSBC 50
    Leveraged Equities -
    LIFT Capital -
    Macquarie Bank -
    National Australia Bank -
    Smith Barney Citigroup -
    St. George Bank 70
    Suncorp -
     
  2. Mark

    Mark Member

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    Hi Glebe

    The lenders lending against Navra are; Leveraged Equities, BT, Colonial and St George at this stage. All offer a starting interest rate better than advertised to Navra clients if they work through an advisor and all offer reduced rates as the loan value ramps up.

    Yes one can transfer the loan..in fact most offer a reduced interest rate on the refinance to entice you to switch. I will post an answer on the costs associated (whether buy/sell or transfer) tomorrow.

    Rates of 7.4-7.6% sound incredible. Not sure you who's offering these rates and for what loan balance. Are these variable or fixed rates?

    Cheers
    Mark
     
  3. Alan

    Alan Well-Known Member

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    It would appear rates of at least 7.75% are readily available for over $500K before any additional advisor reductions:

    http://www.infochoice.com.au/investment/marginlending/compare/tables/rates_variable.asp



    Yes........please tell where 7.4% is available........sounds interesting.
     
  4. Glebe

    Glebe Well-Known Member

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    NAB is offering 7.4% for $500k+ fixed one year in advance.

    I know a Somersoft poster paying 7.1% with CBA on a $1m+ loan.
     
  5. Alan

    Alan Well-Known Member

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    Thanks Glebe.

    I didn't realise you were necessarily talking about prepaid rates.

    I think BT will take off another 0.45% for 12 months prepaid too.
     
  6. Glebe

    Glebe Well-Known Member

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    Hmmm BT do 7.45% for $500k 12 months prepaid. I might have to give them a call to see if they can handle such a transfer nice and cleanly.
     
  7. Alan

    Alan Well-Known Member

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    That's what they offered on my January Statement Glebe.....
     
  8. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Glebe,

    Very interesting indeed. I'm with LE and am paying 8.1%pa variable on my Navra margin loan of $250K. I'll have to look around a bit and see what the others offer.

    Post your results when you get them so we can see what's possible. Thanks for flagging it.

    Cheers,
    Michael.
     
  9. Simon

    Simon Well-Known Member

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    I have LE as well - I wonder if they wil ldiscount to meet the market and retain the business? Be easier than moving.

    Cheers,
     
  10. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Glebe, we recently switched from BT to LE. Very smooth transition.

    They offered us a 0.9% p.a. interest rate discount on the standard variable rate (for the first year only), and thereafter an interest rate discount of 0.55% p.a. (assuming your loan balance remains over $500,000). Their standard variable rate is currently 8.4% p.a.

    It's great to share info isn't it ? Every dollar counts !

    Good Luck and keep us posted on how you go.
     
  11. Glebe

    Glebe Well-Known Member

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    You're right Mark, a bit of hunting around and I found these transfer-in forms.

    http://www.bt.com.au/downloads/forms/btml_additional_forms.pdf

    It looks a pretty easy process (famous last words?).

    Wow nice discount HTL, sounds like I've got some negotiating to do! Funny that you've gone from BT to LE and I'm thinking of doing the reverse. We'll see what happens anyway. I'll let you all know how I go, but I prepaid until mid June so don't expect this finalised anytime soon. Today's research has helped me heaps, thanks everyone! :)
     
  12. Mark

    Mark Member

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    Just to confirm that any costs associated with the refinancing process, i.e. from one margin lender to another, is normally paid by the lenders.

    You normally walk away with a better deal and a smiling face! Good luck!

    Mark
     
  13. Glebe

    Glebe Well-Known Member

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    Heh, so they treat you better if they're stealing business from someone else. Good to know :)
     
  14. Simon

    Simon Well-Known Member

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    I was paying 8.25% at LE on a balance of about $180K. That was after the Navra discount of 0.15%.

    Had a chat to my LE account manager and told him that BT was cutting deals to get business etc and what could they offer me to save the trouble of shopping around and moving.

    He spoke to the rate section and came back with 7.8%. Also with the understanding that as my borrowings increase the rate will again be looked at for reduction.

    Just waiting for confirmation of this via email.

    Thats a win I reckon and well worth the email I sent him.
     
  15. Glebe

    Glebe Well-Known Member

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    Bloody oath it is, good on ya.

    I'm hearing back that on $500k pre-paid in June I won't be doing any worse than 7.5%. It's more a question of where between 7.3% and 7.5%. Apparently they all discount around June, but they try to keep their cards close to their chests before then.

    I'll get back to you all early June with more info about my loan.
     
  16. Simon

    Simon Well-Known Member

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    All confirmed and on my statement.

    I am happy.
     
  17. Maverick

    Maverick Well-Known Member

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    LVR of borrowing against portfolio vs. individual funds

    I have a general question about Margin Loans.

    Do margin lenders allow borrowing against (value of) a PORTFOLIO of managed funds as opposite to (value of) individual funds? When I look on approved investment list, each managed fund in the list has a different maximum security ratio (LVR).

    I guess in my situation, where I would only like to gear to 50% LVR, this is below maximum for any of the managed funds we currently have in our portfolio. Thus I would expect a lender to approve 50% LVR loan on a value of the portfolio.

    But it is interesting how lenders determine how much you can borrow against a portfolio, when some investments (funds) have lower security ratio (max LVR) than others.

    Thank you.
     
  18. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Maverick ... it works differently to property, so don't get hung up on your gearing levels versus what the margin lender's maximum for the individual stock.

    The way it works is like this:

    Say you have $100,000 of cash to invest.

    You decide you want to maintain a 50% LVR.

    You aren't going to invest it all at once, and you want to invest in a number of funds, so, you start by transferring, say, $50,000 of your money into your margin loan account. You are now in credit by $50,000.

    You decide to invest in Navra Blue Chip Australian fund which the margin lender will allow up to 70% LVR. This means that for your $50,000 of cash you put in, you could then have the margin lender purchase up to $166,666 worth of Navra Shares on your behalf (at 70% LVR). To keep your margin levels under control, you decide to only ask them to purchase $100,000 worth of shares, which is $50,000 of your money + $50,000 borrowed money.

    They take the $100,000 out of your margin account (which was $50,000 in credit), and so you now have a $50,000 loan, with a portfolio worth $100,000.

    Next, you decide to invest in the Platinum Asia fund, which has a maximum 65% LVR.

    You transfer another $30,000 into your margin loan account, taking the outstanding loan balance down to $20,000.

    You could purchase up to $85,714 worth of Platinum Asia fund (@ 65% LVR), but you still want to maintain your 50% LVR, so you choose to only purchase $60,000 worth of the Platinum Asia fund.

    The margin lender takes this money out of your margin loan account, which takes the outstanding loan up to $80,000.

    You now own $100,000 worth of Navra Australian, plus $60,000 worth of Platinum Asia, total portfolio value $160,000 and total loan $80,000 = 50% LVR.

    Perhaps you also like Platinum Japan, but the margin lender will only lend up to 60% LVR.

    You deposit your remaining $20,000 into your margin loan account, taking the balance down to $60,000.

    You could purchase up to $50,000 worth of Platinum Japan at 60% LVR, but you decide to maintain your existing 50% LVR, so you only purchase $40,000.

    The margin lender takes the $40,000 out of your margin loan account, taking the balance to $100,000.

    You now own $100,000 of Navra Australian, $60,000 of Platinum Asia, and $40,000 of Platinum Japan. Total portfolio value $200,000 and total debt $100,000 = 50% LVR.

    Now, what happens is that the margin lender calculates a "margin value" against each of these individual funds, based on the maximum LVR and the current value of your holding of that fund.

    For Navra Australia, you own $100,000, max LVR = 70%, thus margin value = $70,000
    Platinum Asia, $60,000 @ 65% LVR, margin value = $39,000
    Platinum Japan, $40,000 @ 60% LVR, margin value = $24,000

    Your total margin value of the funds you hold is $133,000. You currently owe $100,000. This means that you are utilising 75.2% of your margin loan. This is called the margin utilisation. This figure needs to stay below 100% ... meaning that if your portfolio value falls below $100,000 - then you are using 100% (or more) of your margin loan, and you will be in a margin call situation. In reality, most margin lenders give you a 5% or 10% buffer, meaning your loan can actually go as high as 110% of your margin value before they ring you and ask for more money (or start selling your fund units).

    Your maximum LVR with this portfolio is based on your margin value, rather than your loan amount. So, the maximum LVR is $133,000 (margin value) / $200,000 (portfolio value) = 66.5%

    This means that you can borrow up to 66.5% of your portfolio value before you get into a margin call situation. This figure changes based on the amount of each fund you have in your portfolio. If every fund you invested in had a 70% LVR, then your maximum LVR would always be 70%. But as you buy more funds with lower LVRs, this figure progressively drops.

    Hope this helps.
     
  19. Maverick

    Maverick Well-Known Member

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    Follow-up

    Sim,

    Thank you very much for the comprehensive explanation.

    I was coming from the direction of moving my current Managed Funds to a margin lender as a security towards margin loan.

    Our current portfolio comprises of Navra retails Fund, Colonial First State Geared Fund, Colonial First State Global Resources Fund and ING OA Global Emerging Markets Fund.

    And we would like to either increase our exposure to the above managed funds or (preferably) invest into other funds (e.g. Navra US Fund, Platinum Asia Fund).

    So, if the current portfolio value is $100,000 and we would like to maintain 50% LVR, margin lender would create a margin loan facility of $100,000 for us. Right? (BTW, when should we draw down the funds?)

    Now, can we use $100,000 to invest in Navra US Fund and Platinum Asia Fund ($50,000 into each)?

    :confused: :confused: :confused:
     
  20. pudsa

    pudsa Well-Known Member

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    Capitalised Interest

    Hi folks,
    Thanks for the info.

    Can anyone help me out with capitalised interest on a margin loan. Understand concept i.e. interest is added to loan but at some stage the lender is going to want to be repaid. Apprecaite say in the Navra Fund we get capital growth which affects positively impacvts on the margin but at some stage the margin lender is going to want their monet i.e. capital and interest.
    Cheers :confused: