Managed Funds Margin Loan rates - What rate are you paying ?

Discussion in 'Shares & Funds' started by hillsguy, 9th Jan, 2008.

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  1. samaka

    samaka Well-Known Member

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    Straight capitalising:
    Well I've got a CFS margin loan of ~$20k - with interest capitalised. So they never take any money off me - just increase the amount of the loan every month. I was under the impression I can't claim this as a tax deduction. There is record of a payment from me to the margin loan.

    Curly capitialising:
    Now I could tell them to take the monthly interest out of my bank account - which I think would be tax deductible. I could pay this out of my wage, or as above just drawdown that amount out of the ML. In this case there is a transaction history of me paying the interest on the loan.
     
    samaka, 10th Jan, 2008
    #21
  2. hillsguy

    hillsguy Well-Known Member

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    My accountant claims the capitalised interest amount every year. It is still a cost to you regardless if you pay or not. This is what I have been explained.
     
    hillsguy, 10th Jan, 2008
    #22
  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    As HTL already mentioned - this is tax deductible (check with your accountant - mine is happy to claim it).

    This isn't capitalisation at all.
     
    Simon Hampel, 10th Jan, 2008
    #23
  4. gazza

    gazza Well-Known Member

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    9.15% with Colonial on an amount of around 650K (and rising because I capitalise interest)
     
    gazza, 10th Jan, 2008
    #24
  5. hillsguy

    hillsguy Well-Known Member

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    Just thinking ... what happens if you have a 12mth fixed margin loan and half way thru the term you decide to sell up all your units ? Assume there are penalties ?
     
    hillsguy, 10th Jan, 2008
    #25
  6. gazza

    gazza Well-Known Member

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    correction : my Colonial margin loan is costing me 9.3% - it appears they just increased it by 0.15% in early December without telling anybody. I'm sure it was required :) due to the "subprime" problem.
     
    gazza, 11th Jan, 2008
    #26
  7. lorrimer

    lorrimer Well-Known Member

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    If I recall correctly, once you've paid the interest in advance, that's it, it's gone.
    Selling up holdings will lower your LVR but have no effect on your fixed interest balance.
    Hope I'm wrong because the way things are going I may need to sell some of my holdings,
    but I'm pretty sure that's the case.
     
    lorrimer, 11th Jan, 2008
    #27
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    You generally have two options ... either buy into a cash fund (LVR 80% - 90%) to get your 5% or so return until you decide to buy again

    ... or talk to your margin lender to see if they will set you up with a CMT for the difference between your fixed loan balance and the value of your holdings - with the same benefit - at least you'll get 5% or so return (which is better than getting zero!).
     
    Simon Hampel, 11th Jan, 2008
    #28
  9. tasmo

    tasmo Well-Known Member

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    There is another option to manage prepaid interest risk, and that is to not prepay 100% of your margin loan. For myself I prepaid and fixed 2/3 of my loan interest and kept 1/3 variable in arrears. The driving factor for me was how much I needed to prepay to minimize tax to a reasonable level, but also to keep my prepayment portion down to maximize my financial flexibility.
     
    Last edited by a moderator: 11th Jan, 2008
    tasmo, 11th Jan, 2008
    #29
  10. transit

    transit Well-Known Member

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    9.4% with commsec with a loan of $250k. Not many funds are returning this in income to cover the interest.
     
    transit, 12th Jan, 2008
    #30
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