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Margin Loans Margin Loans - Is it worth it now?

Discussion in 'Finance & Banking' started by archangelsupreme, 14th Apr, 2008.

  1. archangelsupreme

    archangelsupreme Well-Known Member

    7th Sep, 2007
    I'm keen to increase my share portfolio which currently cosists of about $35k in managed funds (I've contributed at least $40k to it)....and about $3k worth of direct shares in BHP.

    Do you guys think now is a good time to get into margin loans?....the interest rate is a whopping 10%+. Though of course, you can claim that back right?

    With the upcoming tax end in June....what are the benefits of fixing and paying in advance. Should I be fixing or go variable?
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Only fix if you think rates are going to rise further during the period you intend to fix for and you need the certainty of knowing how much you will pay and don't need the flexibility (ie you don't intend to pay down your loan at any time during the fixed period).

    Pre-paying interest can be a good approach to help minimise this years tax, but you lose out next year if you don't climb on the treadmill of pre-paying every year to keep up the benefits.

    I'm not a fan of pre-paying interest - but it can be a useful tax planning tool if used carefully. Also remember that you don't need to fix/pre-pay the entire amount - you can usually split your loan into part fixed and part variable.

    With margin loan interest rates this high, I'd want to be pretty sure I was receiving a great return on my investment to justify the costs. If you think your investments are going to grow by more than your costs of borrowing, then it is probably worthwhile.

    Either way, I'd keep it modest - no more than 50% LVR is my suggestion ... and I'd want to wait until the market shows a sustained recovery first (which I'm not sure we'll see this year).