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Margin Loans Margin Loan

Discussion in 'Finance & Banking' started by lorrimer, 8th Nov, 2006.

  1. lorrimer

    lorrimer Well-Known Member

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    Please could someone explain what happens once I am approved for a margin loan?

    I'm about to sign up with Suncorp, but despite reading through their literature, I still don't understand how they provide you with the funds.
    Presumably I would first send them my managed fund certificate, but what happens then? Will they send me a cheque to purchase additional units, or do I have to ask them to purchase the additional units on my behalf?

    Also if they purchase the units, will I then get charged entry fee's into the managed fund that I could have avoided by investing directly myself?

    Thanks
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    You have to ask the margin lender to purchase the additional units on your behalf.

    If you want to buy more down the track - you can use the equity built up in your existing margin lending portfolio to buy more (it's nice being able to just ask your margin lender to buy more fund units for you without having to fork over any money !!). Alternatively, you send them some money (which in effect pays down part of the margin loan) and then you can leverage that further to buy more investments (eg you send them $5,000 cash and then ask them to purchase $10,000 worth of units with it).

    Entry fees depend on the fund in question ... some retail funds will charge you the default entry fee unless you use a discount provider like Direct Access or you have negotiated something less with your advisor. You need to ask each fund manager whether they do or don't.

    If they do, you could probably tell your margin lender to use Direct Access to purchase your units - ask them.
     
  3. islandgirl

    islandgirl Well-Known Member

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    Lorrimer
    I am just in the process of setting myself up. One of the things I have found however was that by using my mortgage broker I got a great rate and an additional 0.25% off the interest rate. Also make sure that your margin lender covers all the funds/shares you want to invest in. Not all accept Navra for example

    I'm still learning too so thanks for your post. I have no idea yet as to the nuts and bolts of actually doing it so it helps when others ask the question!

    Good luck with your investing!
     
  4. lorrimer

    lorrimer Well-Known Member

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    Thanks very much for your responses,

    Sim, if I were to capitalise the intersest on the loan, could I send them a cheque at any time to keep the LVR under control if I wanted to?
    With regards to captalising the interest, am I right in thinking that I would be able to claim all the interest on the loan as a tax deduction whether I chose to pay back some of the interest or capitalise the full amount?

    Islandgirl, what a great idea to get your mortgage broker to arrange your margin loan. I hadn't thought of that, as I thought they only dealt in arranging mortgages. The discount that he managed to get you, was that on their variable rate loan?
    I need to find a good mortgage broker myself, would you mind telling me who you are useing?
    I wish you the best of luck with your investing also.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    You'd need to double check with the lender, but yes, in general you can make principal repayments at any time (by depositing into the loan account) to reduce the LVR. In fact they usually encourage you to do so !

    I would expect that all interest liability incurred, regardless of how it is paid (ie from cash or from equity) is going to be deductible. Worth double checking this with your accountant to make sure this is still valid for your circumstances. Just make sure that you aren't drawing down on the margin loan for private uses!
     
  6. qlds007

    qlds007 Member

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    Just to correct the post.

    You MB also needs to be a Financial Adviser or otherwise he is unable to offer you advice on Margin lending.
     
  7. handyandy

    handyandy Well-Known Member

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    Just a comment re Direct Access. I would recommend Investsmart rather than Direct access.

    In the case of Direct access they do rebate entry fees but still keep your trailing commission.

    Investsmart also rebate any entry fee's but in addition also rebate any trailing commissions above $396.

    The difference between the two is not significant until your investments reach $100k. At $100k with a 4% trailing commission the trails reach $400 and thus from this point you are making saving using Investsmart.

    Cheers
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Thanks handyandy - I've never used Direct Access myself ... although I did once use Neville Ward Direct (which is now owned by Commsec I believe). I got a surprise some 12 months or so down the track when they sent me a cheque out of the blue rebating part of their trailing commission!
     
  9. bundy1964

    bundy1964 Well-Known Member

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    Saw something in the Advertiser the other day out of 6 million shareholders there are only 170,000 margin loan accounts, make that 170,001 when mine gets approved :D still fairly rare air we are working in.

    At the moment it is so much easier to set up and run than getting a property loan, I have gone for the easy option of using the inhouse broker/managed funds but I can use any that I choose. Once it becomes more mainstream do you think they will increase the hoops you need to jump through to get a deal over the line?
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think once they become more mainstream and we have a major sharemarket correction which sees a lot of people losing a lot of money through forced sales in a margin call situation ... then I suspect we may well see some more stringent demands placed on margin loans applicants (particularly a requirement to get independent financial advice and such).

    In the hands of the ignorant user who doesn't fully understand them, a margin loan can be a dangerous thing. Fortunately, most people tend to be very conservative with margin loans - which means they are unlikely to get into trouble.

    After battling with the banks for my current round of IP refinances, it is very refreshing to deal with the margin lenders for my current margin loan refinance I am undertaking!
     
  11. sbaker

    sbaker Member

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    I have a margin loan through Bank of Queensland. I researched about 10 different margin lenders and finally decided on BOQ because of their really good LVR's and range of funds available.
    It really depends on the specific funds you want to invest in to decide which lender to go with.
    BOQ handle everything for me, they buy the units, make the additional investments/transactions on your behalf. The only thing you need to do it fill out the form should you want to switch, make a new investment etc..

    Id also recommend investsmart, they are really good with their service and refunding entry fees and trailing commissions.

    Hope thats a help! :)